I didn’t pay that much attention to Paul Krugman prior to about 2008- not coincidentally, around the time of the Great Recession and the bizarre situation wherein political decision-making seemed to be completely divorced from widespread consensus on action.
In any event, while I recognize that his political views are not everyone’s cup of tea, I have found his insider’s glimpses into the differences between economics as a mainstream discipline vs. economics as portrayed in the public arena by turns fascinating and maddening.
He recently offered this discussion, of the kinds of disagreements economists have within the discipline as practiced in good faith, vs. the disagreements with those shaping the public discourse in media [all emphases mine]:
So, what is neoclassical economics? … We imagine an economy consisting of rational, self-interested players, and suppose that economic outcomes reflect a situation in which each player is doing the best he, she, or it can given the actions of all the other players. If nobody has market power, this comes down to the textbook picture of perfectly competitive markets with all the marginal whatevers equal.
Some economists really really believe that life is like this — and they have a significant impact on our discourse. But the rest of us are well aware that this is nothing but a metaphor; nonetheless, most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point or baseline, which is then modified — but not too much — in the direction of realism.
This is, not to put too fine a point on it, very much true of Keynesian economics as practiced (leave aside discussions of What Keynes Really Meant and whether we’re all apostates). New Keynesian models are intertemporal maximization modified with sticky prices and a few other deviations (such as balance-sheet constraints). Even IS-LM loosely appeals to maximization arguments to derive the slopes of the curves, while analyzing outcomes by comparing equilibria.
Why do things this way? Simplicity and clarity. In the real world, people are fairly rational and more or less self-interested; the qualifiers are complicated to model, so it makes sense to see what you can learn by dropping them. And dynamics are hard, whereas looking at the presumed end state of a dynamic process — an equilibrium — may tell you much of what you want to know.
That sounds remarkably like any kind of modeling in systems sciences. I was thinking physics/oceanography/climate, or ecology, but Krugman follows through on this idea with an analog he’s cited before:
These motives are the reason why other fields facing similar concerns adopt similar strategies. As I wrote long ago, evolutionary theory — the biological kind — looks remarkably like neoclassical economics.
Hearing Krugman lay out the pretty reasonable basis that modern mainstream economics starts from, I wondered to myself just how I came to think so poorly of the field. And the answer of course was economists and economic pundits making absurd claims across all manner of media.
And Krugman cuts to the heart of that:
They claim to reject neoclassical economics, but their alternative is not an alternative model but a lot of verbiage; they talk at the economy, and imagine that by so doing they achieve a higher level of sophistication and realism than economists who try to express their ideas in terms of little models.
And they’re kidding themselves; all they’ve done is hide their implicit models and prejudices behind a dust cloud. And that’s one reason they have been so disastrously wrong at every stage of this crisis.
The economists that I was so disgusted by were not ones who simply used mainstream or even alternative models and arrived at conclusions that differed from my preferred outcomes- they were talking heads from the Wall Street Journal, doom mongering on Glenn Beck’s clown show. They pretended to be speaking plain truths that didn’t rely on “suspect” models, but of course were using models of their own- laughably unconstrained by reality, internal consistency, or the body of evidence of their field.
Sounds all too familiar, doesn’t it?
Imagine if the field of climate science was judged by the talking heads or blogologists who eschew physics-based climate models as fraudulent, perversely talk about how a warmer MCA means we have nothing to worry about from unchecked increases in radiative forcing, or make endless predictions of cooling just around the corner that never come true.