Must-Read: Steve Pearstein: The Value and Limits of Economic Models
Must-Read: Let me agree with Steve Perlstein here: the economics that the very sharp Dani Rodrik praises is not the strongest current, outside of our liberal-arts non-business school ivory towers, and not always even in them.
The Value and Limits of Economic Models: “The alleged failings of economics are now widely understood…:
…except perhaps by economists themselves. You hear that economics is ideology masquerading as hard science. That it has become overly theoretical and mathematical, based on false or oversimplified assumptions about the ways real people behave. That it systematically misunderstands the past and fails to anticipate the future. That it celebrates selfishness and greed and values only efficiency, ignoring fairness, social cohesion and our sense of what it is to be human. In his latest book, ‘Economics Rules,’ Dani Rodrik tries to bridge the gap between his discipline and its skeptics….
What economists forget, Rodrik says–or even worse, what they never are taught–is that the answer to most important questions is “It depends.” What’s right for one country at one time may not be right for another country or another time. Context matters. And because context matters, he argues that too much of the focus in economics has been on developing all-encompassing models and grand theories that can be applied to every context, and too little on expanding the inventory of more narrowly focused models and developing the art of knowing which ones to use….
Rodrik no doubt set out to offer an evenhanded view of modern economics, [but] in the end he winds up delivering a fairly devastating critique. “The discipline hobbles from one set of preferred models to another, driven less by evidence than by fads and ideology,” he writes. He despairs that his profession has become one that values “smarts over judgment,” has disdain for other disciplines and is content to produce mathematically elegant research papers that few outside the guild will ever use or understand. The standard economics course offered to undergraduates, he rightly complains, winds up presenting nothing more than “a paean to markets” rather than a “richer paradigm of human behavior.” Rodrik’s plea is for economics to be practiced with a bit more humility both by those who extol free markets and those who would tame them. Economics, he argues, is less a hard science capable of producing provable truths than a set of intuitions disciplined by logic and data and grounded in experience and common sense…