Monday, February 02, 2015

A Cynical Take By Greece's Finance Minister On Mainstream Economists

I have found Yanis Varoufakis' 2014 book, Economic Indeterminacy: A personnel encounter with economists' peculiar nemesis a bit too abstract for my tastes. I am not sure that game theory counts as a subset of neoclassical economics, although I can see how some game theory meets Varoufakis' definition. One might see how a lot of game theory illustrates the idea that economists, collectively, exhibit weakness of will. That is, a lot of game theory can be used to develop models with multiple equilibria and of nondeterministic outcomes. One might expect economists to shy away from these conclusions.

I find it hard to accept Varoufakis's argument that in games, one might want to deliberately be irrational. I wondered if that was so, wouldn't an opponent see this? And, thus, would not this irrational behavior therefore be rational at a meta-level? Varoufakis' argument is structured to address this objection.

But my point in this post is to quote from the preface:

" project's failure was predetermined, at least in the sense that it was never going to cause a shift in the attitudes and demeanour of a profession which operates like a priesthood, dedicated solely to preservation of its dogmas... as well as to the recapitulation of its authority within the universities, the financial sector and the government. Indeed, at no point did I harbour any significant hope that this priesthood would take kindly to the demons of doubt and indeterminacy which my work was bound to give rise to. But it did not matter, at least not at a personal level. My intimate familiarity with the neoclassical models was sufficient to keep me on the roster of neoclassical economics departments, where a capacity to teach these models, and produce academic papers based on them is all that matters.

Looking back at these long years of tampering with, and delving into, the complex models of the neoclassical tradition, I cannot but question my decision to keep pushing, Sisyphus-like, the theoretical rock up the neoclassical hill. Why did I stick to this task, when I knew it would end up in failure? In retrospect, there were two reasons, neither of which was predicated upon any hope of influencing a profession utterly uninterested in the truth status of its models. First, I deeply enjoyed toying with these models as an end-in-itself, just as a clockmaker enjoys taking apart and then re-assembling some old clock for the hell of it. Secondly, and more importantly, I felt it necessary to make it hard for my colleagues to pretend to themselves that the models they were being forced to with, by a particularly authoritarian profession, were logically coherent. Bringing them, even fleetingly, to the point when they had to confess to their models' internal contradictions was, I felt, a victory of sorts; the equivalent of a lone sniper behind enemy lines making life difficult for an army of cocupation." -- Yannis Varoufakis (2004: p. xxiv.)

Varoufakis has some other books that sound interesting and more popular. I think his book; The Global Minotaur: America, Europe and the Future of the Global Economy; might be especially topical at the moment.

Update: Steve Keen provides a link to one exposition of Varoufakis' argument that, in game theory, agents can and will deliberately choose irrational behavior.

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