Some Thoughts on the Contentious State of Economics: Why So? What to Do?

Abstract

This brief note, commenting on the disorderly state of the discipline, identifies several causes of disagreement, concluding that a major source of dissention amongst economists is over the question of how to “do” economics: whether or not attempts—as by “neoclassical” and “new classical” schools of thought—to emulate the methods of natural sciences such as physics are more likely to bring understanding or result in distortion of the subject matter.

Keywords:

• neoclassical methodology
• Keynes's methodology
• “physics envy”

Acknowledgements

I wish to thank Chen Shuoying for her invitation to contribute to International Critical Thought, Sheila Dow, Edward Fullbrook and Mark Hayes for their kind cooperation regarding this paper, and John Scouller and Eric Rahim for their comments on earlier drafts.

Disclosure Statement

No potential conflict of interest was reported by the author.

Notes on Contributor

Roy H. Grieve is formerly Honorary Senior Lecturer of the Department of Economics at the University of Strathclyde, Glasgow, Scotland. His main teaching and research interests include macroeconomics, development economics and the history of economic thought. He has been involved in research and teaching in Nepal, Albania, Pakistan (Government College University, Lahore) and China (China Foreign Affairs University, Beijing). He has contributed to various journals including Review of Political Economy, Review of Radical Political Economics, Journal of Economic Studies, Journal of Interdisciplinary Economics, International Journal of Technology Management & Sustainable Development and the on-line Real-World Economics Review. He edited, with M. M. Huq, a volume on Bangladesh: Strategies for Development (University Press, Dhaka, 1995) and is presently working on a collection of essays entitled Swimming against the Neoclassical Tide, to be published by the World Economics Association.

Notes

¹The so-called “new Keynesian” school (a misnomer) is in fact of a neoclassical rather than Keynesian character.

²Note Paul Streeten (2002, 19):

[. . .] all theory has to be abstract, has to leave out many features of a complex reality, but if the abstractions are of the kind that pours out the baby with the bathwater, it is damaging to an understanding of reality. Accusations that economics is the science that argues from unwarranted assumptions to foregone conclusions then become justified.

³Note John Kay (2011): “Economics is not a technique in search of problems, but a set of problems in search of solution.”

⁴“Two Cambridges” refers to Cambridge University, UK versus MIT, Cambridge, MA, USA.

⁵“Leets” = “Steel” spelled backwards.

⁶Note Lars Pålsson Syll (2012, 36): “Models based on REH [the rational expectations hypothesis] impute beliefs to the agents that are not based on any real informational considerations, but simply stipulated to make the models mathematically-statistically tractable. . . .”

⁷ The REH (rational expectations hypothesis) model-maker has to assume/believe that the economic world is sufficiently orderly and predictable to justify adoption of the REH theory of expectations formation. Thus Paul Davidson states that:

To acknowledge that a nonergodic world is inextricably tied to crucial choices [which inevitably alter the context in which they are made, invalidating the assumption of ergodicity] is to admit that significant areas of economics cannot be turned into a science on a par with the immutable laws of the natural sciences. (Davidson 1982–83, 195–96)

But simply supposing that the world is not as unpredictable as Davidson implies, and that the RE conception is not therefore ruled out of court, is exactly what is done.

It is clear from the uses to which rational expectations models have been put that proponents believe ergodic processes are appropriate to questions of the acquisition of wealth and to monetary theory. The inclusion of these vast and important areas of economics under the rubric of ergodic process analysis is not based on any logical or scientific principle. It is simply a matter of faith. . . . Hence, just as Ferguson had to admit that the neoclassical production and distribution theory was not based on scientific foundations but was a “statement of faith,” so must REH proponents, in candor, confess that the applicability of modern neoclassical theory of rational expectations is merely a statement of faith. (Davidson 1982–83, 195–96; emphasis added)

⁸An economist who at the time was attempting the empirical derivation of commodity demand schedules. Keynes, thinking of the possible variability of the relationships involved, was sceptical of the value of such exercises.

⁹Keynes in fact famously remarked that,

Too large a proportion of recent “mathematical” economics are merely concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols. (Keynes 1973, 297–98)