Must Read: N. Emrah Aydınonat: Using and Abusing Models in Economics: A Review of Rodrik’s Economics Rules
Must-Read: One of the things that has slipped through the cracks this late summer is my sitting down to read the extremely sharp Dani Rodrik’ Economics Rules. Here are selections from what my Visualization of the Cosmic All suggests is a good review:
Using and Abusing Models in Economics: A Review of Rodrik’s Economics Rules: “Rodrik… argues that both unrealistic assumptions and mathematics are useful in economic modelling…:
…makes the case for economics as a social science… does not have fundamental laws, and economists should not behave as if they have discovered the fundamental laws…. Models clarify hypotheses, enable accumulation of knowledge, imply an empirical method, and help economists generate knowledge based on shared professional standards…. Rodrik… explain[s] the general principles of model selection… verify[ing] (i) critical assumptions… (ii) mechanisms… (iii) direct implications… and (iv) incidental implications…. General economic theories are frameworks for organizing our thoughts, ‘rather than stand-alone explanatory frameworks’… specific to particular cases… a modest science….
Chapter 5: When Economists Go Wrong…. Mistaking a model (more appropriately, economists’ preferred models at the time) for the model is the most important reason why economists go astray. In the case of the financial crisis, the preferred models were models that support the efficient market hypothesis. In the case of Washington Consensus, the preferred models were the models that assume that the main drivers of growth were saving and access to investable funds. So how did economists get it so wrong in both of these cases? Not because they did not have appropriate models (they did), rather they became overconfident concerning some models, and ignored others. They have confused a model, with the model….
Rodrik argues that economics is not the problem, economists are… idealization, abstraction, utilization of unrealistic assumptions, methodological individualism are not problems as long as one appreciates the diversity of economic models and accepts the fact that each economic model is an attempt to understand some real world relationships in isolation. Market favoritism is not a problem of economics… [but] rather a problem created by some overconfident economists…. Economics is more pluralist than it appears…
And here is a quote from John Maynard Keynes’s obituary for Alfred Marshall that strikes me as in the same intellectual space as what my Visualization of the Cosmic All leads me to suspect Dani’s book is:
Alfred Marshall: “The study of economics does not seem to require…(1924):
…any specialised gifts of an unusually high order. Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy and pure science? Yet good, or even competent, economists are the rarest of birds. An easy subject, at which very few excel! The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must reach a high standard in several different directions and must combine talents not often found together. He must be mathematician, historian, statesman, philosopher—in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician…