August 27, 2017

A bitter pill for political economists

Comment on Simon Wren-Lewis on ‘Medicine and the microfoundations hegemony in macroeconomics’


When economists are at the end of their wits they turn to analogies and metaphors. Simon Wren-Lewis is a case in point: “I’m beginning to think I should have made much more of analogies between economics and medicine in discussing what I call the microfoundations hegemony: the idea that the only ‘proper’ macroeconomic models are those that have all their equations consistently derived from microeconomic theory.” And he concludes: “That some macroeconomists (I call them microfoundations purists) can argue that you should model and give policy advice based not on what you see but on what you can microfound represents something that I cannot imagine any philosopher of science taking seriously (after they had stopped laughing).”

Nobody can take this methodological absurdity seriously. The fact to start with is (i) that microfounded macroeconomics is one of the worst blunders in the history of modern science, and (ii), that the representative economist ― Simon Wren-Lewis included ― cannot get his head around it to this day.

The political economist has an instrumental relationship to science and uses theory as a means to an end. Given his political priorities, he simply suspends theory if it comes in the way of agenda-pushing.

The difference between scientist and political agenda pusher is this: “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. ... A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent.” (Haack)

Economics claims to be a science and, by consequence, the economist has to satisfy scientific standards and NOTHING else. Scientific standards are well-defined since antiquity: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)

If the facts contradict microfounded macro, it is refuted and has to go out of the window. It is as simple as that. It is NOT possible to say, if a theory contradicts the facts I suspend the theory for a while and march on with analogies, metaphors, common sense, and populism. A scientist under NO circumstances does what is second nature to a political agenda pusher: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

Microfounded macro is NOT the true theory. In fact, Walrasian microfoundations are false for 150+ years.#1 Unfortunately, Keynesian macrofoundations are false for 80+ years. Both approaches have already been dead in the cradle without economists ever realizing it. What any philosopher of science has to say to the representative mico- and macrofounded economist (after they had stopped laughing) is: You are fired!

Egmont Kakarot-Handtke

#1 First Lecture in New Economic Thinking

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