| John Eatwell On Why Economists Disagee |
I like the above lecture by John Eatwell. He concludes by talking about the partial equilibrium model of supply and demand "that we teach, and we justify it by the general equilibrium model". He notes that lots of economists put imperfections in. The Arrow-Debreu is currently the fundamental model of price theory among mainstream economists. According to Eatwell, economists fall into at least five groups.
- Those who think revisions are important to retain market rationality and try to find ways to make the model work, for example, with representative agents in Dynamic Stochastic General Equilibrium models.
- Those who think reasonable, empirically-based imperfections can be used to produce practical models.
- Those who find things that fit empirically and don't worry too much about the explanation. For example, consider the Solow growth model.
- Those, the top econometricians, who simply study economic variables, without a lot of theory.
- In despair, those who are trying to analyze economic variables in entirely new ways, for example, behavioral economists, Colin Cameron.
Economics today is a catalogue of results and models built around a core, the Arrow-Debreu model, the results of which nobody believes. "And we ignore the long run. Economists have a theoretical core, which we don't use, or we modify to take away from its essence, or we don't believe it."
I think that many mainstream economists will refuse to tell an outsider that that is the state of mainstream economics today.
A piece of intellectual history rife with dark irony...
ReplyDeleteOnce upon a time England had a beautiful church hymn:
ReplyDelete> All things bright and beautiful /
> All **creatures** great and small /
> All things wise and wonderful /
> **God** made them all.
>
> The rich man in his castle /
> The poor man at his gate /
> **God** made them high and lowly /
> And ordered their estate.
The reason why theological colleges were generously funded by donors was to train priests who would preach that hymn to their flocks.
The purpose of training priests of Economics in Departments of Business Economics is for them to preach to the voters the new (whig instead of tory) version of that hymn:
> All things bright and beautiful /
> All **commodities** great and small /
> All things wise and wonderful /
> **The Markets** made them all.
>
> The rich man in his castle /
> The poor man at his gate /
> **The Markets** made them high and lowly /
> And ordered their estate.
The revised "whig" version of the hymn is pretty much the "tl;dr" version of every Economics textbook, and only Economics theories compatible with it are "internally consistent".
Then my usual quote that our blogger probably still remembers:
ReplyDelete«I found myself sitting next to a very likable young middle-aged academic tenured at an elite British university, whom henceforth I will refer to as Doctor X and whose field is closely associated with this blog. [...] Every year I publish papers in the top journals and they’re pure shit.”
Doctor X, who by now had had a glass or two, felt bad about this, not least because “students these days are so idealistic and eager to learn; they’re really wonderful.” Furthermore Doctor X could and would like “to write serious papers but what would be the point?” [...]
The amount of funding Doctor X’s department receives depends not on how many papers or their quality its members publish, but instead on in which journals they are published. The journals in Doctor X’s field in which publication results in substantial funding will not publish “serious papers” but instead only “pure shit” papers, meaning ones that merely elaborate old theories that nearly everyone knows are false.
Moreover, even to publish a “serious paper” in addition to the “pure shit” ones could taint the department’s reputation, resulting in a reduction of its funding. In any case, no one at a top university would read a “serious paper” because they only read “top journals.”»