Comment on Simon Wren-Lewis on ‘Woodford’s reflexive equilibrium’
Blog-Reference
In the Middle Ages savants were heavily occupied with questions like had Adam a navel? or how many angels can dance on the head of a pin? Methodologically economics is roughly at the same stage.
The question of how to pick a path among an infinite number of rational expectations equilibrium paths is a fine specimen of Angelology.#1 Has anyone on this blog noticed that there is no such thing as an equilibrium in the economy? Since 1990 equilibrium is officially dead and the historians of economic thought ‘have finally hammered down the nails in this coffin’ (Blaug, 2001, p. 160).
The logical conclusion is to entirely reconstruct economics without the concept of equilibrium. In methodology this is called a Paradigm Shift: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990, p. 362)
Obviously, there is until this very day ‘no indication of what it might mean’ to do economics without the nonentity equilibrium and the green cheese behavioral assumptions of constrained optimization and rational expectations.
The loudspeakers of the profession simply cannot get their heads around the fact that they are irrecoverably lost in a scientific parallel universe. As Krugman recently confirmed on his blog “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point ...”.
Recently, though, there have been signs of progress because Krugman talks more about Trump than of maximization-and-equilibrium. It would significantly improve the intellectual level of theoretical economics if all reflexive equilibrists could follow this trend and focus more on Trump or other important and interesting manifestations of what Hegel called the Weltgeist#2 — after all NONENTITIES are the economists’ proper field of expertise.
Egmont Kakarot-Handtke
References
Blaug, M. (2001). No History of Ideas, Please, We’re Economists. Journal of Economic Perspectives, 15(1): 145–164.
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, London: MIT Press.
#1 Wikipedia
#2 Wikipedia