Having collected some of the thinking in the economic civil-war debates in my last post I would like to now throw out a few general observations.
John Quiggin in a recent post at Crooked Timber notes some of the causes of the schism, he thinks partly due to the recent increase in polarization in the political climate in the US, but a great deal to do with the neo-classical models used by the Chicago school failing to deal with the current economic situation. Keynsian economics was forged in the great depression so it is hardly surprising that it should turn out to be quite useful in our great recession.
In a subsequent book-blogging post Quiggin looks at the relationship between macro-economics and micro-economics, observing that the efforts to build macro-economic models out of micro-economic models may be misguided.
If we are to develop a macroeconomic theory that can help us to understand, and hopefully prevent the recurrence of, crises like the current one, and help us to improve policy responses, economics must take a different road from that it has followed since the 1970s. The appealing idea that macroeconomics should develop naturally from standard microeconomic foundations must be recognised as a distraction. In its place, we must accept, in the language of systems theory that macroeconomic phenomena are emergent, arising from complex interactions of behaviors we do not fully understand, but must nevertheless respond to.
And Yglesias responds (I have made multiple efforts to compress it):
I think this is the wrong way to generate that conclusion. What I think Quiggin ought to say is that macroeconomic theory needs to distinguish between two different kinds of questions about foundations. One is a somewhat metaphysical issue about whether or not it’s the case that macroeconomic propositions are ultimately reducible to microeconomic phenomena. This is related to issues about whether or not mental processes are ultimately reducible to biological processes in the brain (or does the mental supervenes on the physical without being reducible to it) whether moral facts can be reduced to physical ones (as in Cornell realism) and so forth.
The other—and quite different—issue is a methodological question about whether it really makes sense to demand that macroeconomists produce microfoundations for their theories. We learned a great deal about chemistry before we understood the structure of the atom in detail. When Darwin proposed evolution by natural selection, he couldn’t provide the genetic microfoundations the theory required. And when Mendel pioneered genetics, he couldn’t provide the chemical microfoundations that the discovery of DNA provided later. As it happens, microfoundations have been discovered for most of this stuff. But the theories weren’t initially accepted because they had strong microfoundations, they were accepted because they worked well as theories on their own terms. A macroeconomic theory that’s based in elegant microfoundations but that doesn’t actually explain the economy well is useless. But that doesn’t require you to commit yourself to any strong claims about the ultimate metaphysical status of the discipline.
I have been drawing attention to the attempts to reduce science to ethics, seemingly driven by this craving to turn philosophy into a natural science and physicalist presumptions that Yglesias mentions above, and how they are destroying our understanding of ethics. It would seem that something quite similar has been happening in economics.
Reductionism in Economics
Having collected some of the thinking in the economic civil-war debates in my last post I would like to now throw out a few general observations.
John Quiggin in a recent post at Crooked Timber notes some of the causes of the schism, he thinks partly due to the recent increase in polarization in the political climate in the US, but a great deal to do with the neo-classical models used by the Chicago school failing to deal with the current economic situation. Keynsian economics was forged in the great depression so it is hardly surprising that it should turn out to be quite useful in our great recession.
In a subsequent book-blogging post Quiggin looks at the relationship between macro-economics and micro-economics, observing that the efforts to build macro-economic models out of micro-economic models may be misguided.
And Yglesias responds (I have made multiple efforts to compress it):
I have been drawing attention to the attempts to reduce science to ethics, seemingly driven by this craving to turn philosophy into a natural science and physicalist presumptions that Yglesias mentions above, and how they are destroying our understanding of ethics. It would seem that something quite similar has been happening in economics.