November 27, 2015

Still behind the curve

Comment on pontus on ‘Economic growth’


In the 1980s, the neoclassical avant-garde arrived at the insight that the research program had run into the sand.

“I have always regarded Competitive General Equilibrium analysis as akin to the mock-up an aircraft engineer might build. My amazement in recent years has accordingly been very great to find that many economists are passing the mock-up off as an airworthy plane, and that politicians, bankers, and commentators are scrambling to get seats. This at a time when theorists all over the world have become aware that anything based on this mock-up is unlikely to fly, since it neglects some crucial aspects of the world, the recognition of which will force some drastic re-designing.” (Hahn, 1981, p. 1036)

It was obvious to some that cosmetic corrections and the habitual quick fixes would no longer suffice.

“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)

To attempt a paradigm shift in earnest is what genuine scientists would have done. But there is a longstanding tradition in economics to violate scientific standards.

“In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern, 1941, pp. 369-370)

All this got lost on the representative economist and this is why he makes a fool of himself as sorta-kinda maximization-and-equilibrium guy ‘as if nothing had happened’.

You give me this good advice: “You have to start criticising modern economics, not eighties economics.” There is no need for anybody to criticize modern neoclassical economics because nothing that has been produced since the eighties can be taken seriously (Quiggin, 2010). The premises of maximization-and-equilibrium have been false then and are false now.* The iron methodological rule holds: garbage in, garbage out.

The representative economist has failed to catch up with Joan Robinson of 1980: "Scrap the lot and start again."

Throw away all papers, books, and posts that apply sorta-kinda maximization-and- equilibrium and only what then remains is worthy of further discussion.

Egmont Kakarot-Handtke

Hahn, F. H. (1981). Review: A Neoclassical Analysis of Macroeconomic Policy. Economic Journal, 91(364): 1036–1039. URL
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, MA, London: MIT Press.
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, NJ, Oxford: Princeton University Press.

* See also the post ‘Heterodoxy as superior alternative

Immediately preceding post 'Increasing returns and the art of self-trapping'