Romer v. Lucas




































40 Responses to “Romer v. Lucas”

  1. 1 jpd August 14, 2015 at 12:38 am

    Reblogged this on DAMIJAN blog and commented:
    Must read za vse, ki bi radi razumeli, kdaj in kako je ekonomska teorija zablodila v smer

  2. 2 Marcus Nunes August 14, 2015 at 7:40 am

    The very last sentence is the perfect punch-line. The post is long and hard, but all you have to remember is the last sentence!

  3. 3 richardhserlin August 14, 2015 at 8:17 am

    This really does depend on how good the empirical evidence is. Galileo might have just thought that the empirical evidence for geocentrism, such as it was, was not good, that it had serious holes.

    But is it good to always disregard empirical evidence, no matter how good, because you are ideological, or “passionate”? Is it good to still believe in a flat Earth because that’s your passion, and so you disregard the empirical evidence no matter what it is, no matter how strong?

    When you look at what a lot of the Freshwater economists say about human behaviour, assumptions absolutely integral to their conclusions, and then look at mountainous empirical evidence against that, things like in a recent survey 65% of people answered incorrectly when asked how many reindeer would remain if Santa had to lay off 25% of his eight reindeer, then these freshwater economists begin to look like passionate ideological flat Earthers.

  4. 4 jientho August 14, 2015 at 9:13 am

    I don’t get it. Is there no difference, in your view, between a question-begging theory-clinging (Lucas), and a special-pleading theory-clinging (Galileo)? Ethically those are miles apart, in my view.

  5. 5 Jonathan Goodman August 14, 2015 at 10:34 am

    I don’t think you have Galileo right. There was evidence for the the Copernicus model with the sun in the center — it fit the data better with a simpler model. To within the accuracy of the measurements Copernicus had, you could fit the data with planets in circular orbits. The Ptolemy model with the earth in the center was more complicated, with planets going in circles around circular orbits (epicycles). Galileo was using another scientific principle Feynman surely articulated: take the simplest theory that fits the data.

    Yes, Galileo was an iconoclast. He probably was motivated in part by his desire to contradict the Catholic church.

  6. 6 Tom Brown August 14, 2015 at 11:14 am

    David, I’m so glad you took a look at this topic, and I really enjoyed the post, although my comprehension of parts of it were not 100%.

    One thing I’ll say about Feynman integrity though: I don’t really see a downside, especially if practiced by all. In Galileo’s case, had Feynman integrity been the order of the day, Galileo himself wouldn’t have mattered: somebody else would have figured it out and soon overwhelming empirical evidence would support that conclusion. Perhaps Galileo needed “faith” only because he was living in an age of faith and going against that massive edifice of unreliable epistemology required some stamina. Feynman himself is another example: Feynman integrity didn’t really slow him down, and perhaps it helped accelerate his achievements.

    However I do agree that science as an institution is generally robust by design, and those without much Feynman integrity can make meaningful contributions. I like to think that science is one of the only fields in which even sociopaths can contribute: they can lie, cheat and steal, but if they have even half a brain, they’ll realize that somebody is going to double check what they’re saying and doing, and the gig won’t last long.

    Sociopaths in religion, politics, business and many other human endeavors don’t get self correcting negative feedback for their sociopathic ways… in fact, just the opposite at times: they get *positive* feedback for it! Lol. That’s my conjecture anyway.

  7. 7 Tom Brown August 14, 2015 at 11:17 am

    … I shouldn’t say sociopaths NEVER get negative feedback in other fields, but they are perhaps less likely too.

  8. 8 Tom Brown August 14, 2015 at 11:23 am

    … and personally I’m repulsed by signs of faith, which I don’t consider to any kind of virtue (just the opposite actually). If I smell any signs of faith going on, I like to ask “What evidence would convince you that you’re wrong about that?” Faith junkies usually provide excuses, not matter of fact answers to that question.

  9. 9 David Glasner August 14, 2015 at 11:40 am

    jpd, Many thanks.

    Marcus, Actually I think I had a couple of good lines before that, but I did like the last one too.

    Richard, Well, Galileo deserves a lot more attention than I gave him, and I don’t know if historians would agree with the version that I took from Kuhn. But my only point is that there are a lot of judgments that scientists make in deciding whether to stick with a theory that has some empirical problems or go to another. So just because Lucas is attached to a particular theory doesn’t mean that he has committed a big sin. Wasn’t Einstein hostile to quantum mechanics because he said God does not play dice.

    jientho, There’s a big difference, but the difference has nothing to do with the fact that they both believed deeply in their theories.

    Jonathan, I think that you are supporting my point. Lucas thinks that he has the simpler theory; he believes in the Arrow-Debreu-McKenzie model, and he is disgusted by the old macroeconomics that is not properly grounded in the ADM model, even though he himself has to make some allowances in the model to get the quantity theory of money into the picture.

    Tom, I am all in favor of Feynman integrity, but I think it is less important than Romer does. I disagree with you about faith, we all have faith in something; as the arch-skeptic Hume explained, we all act on beliefs or assumptions for which we personally have no rational justification. So everything is a matter of degree. Having faith doesn’t necessarily mean being an idiot. But we can put this faith-based discussion off to the side.

  10. 10 Tom Brown August 14, 2015 at 12:19 pm

    David, thanks. I do trust that I exist and have experiences. I can think of mind changing evidence for everything else.

  11. 11 Tom Brown August 14, 2015 at 12:40 pm

    … and I agree with your statement about being an idiot: it can take a very high level of intelligence to fool yourself. Which brings to mind Feynman’s dictum boiled down to one sentence:


  12. 13 Jason Smith August 14, 2015 at 1:45 pm


    I don’t want to give too robust a defense of Lucas here, but this analogy is a bit anachronistic — Galileo practically invented the empirical-mathematical approach to research. It would be a bit like you saying:

    [Would anyone ever think that unless you can formulate the problem of whether the earth revolves around the sun or the sun around the earth on a computer, you don’t know what you are doing?]

    Lucas lives in a time of mathematics (and computers), and I actually agree with him that if you can’t find a way to formulate a problem mathematically, you don’t fully understand it. We really didn’t fully understand Copernicus until Newton and Kepler (or really Einstein). My definition of math is broader than Lucas’s ADM equilibrium and microfoundations — and includes e.g. Marshall’s diagrams.

    I think a good example of where Lucas’s advice applies is expectations. You can mathematically describe rational expectations (it’s not necessarily an accurate model, just possible), but not things like a central bank “credibly promising to be irresponsible”. I still have no idea what that means even though I generally believe the liquidity trap model seems to work in practice. Could you take the people from the Reserve Bank of Australia and put them in charge of the Bank of Japan and get more inflation there? Trade Janet Yellen for Mario Draghi and get less inflation in the US? A non-mathematical model of expectations is suspect … at least for me.

    As a side note, Galileo observed the phases of Venus and Jupiter’s moons orbiting Jupiter; he extrapolated from those empirical facts that the Earth wasn’t the center of the solar system. He did have empirical evidence so it wasn’t completely metaphysical.

  13. 14 Tom Brown August 14, 2015 at 2:21 pm

    Jason, regarding mathematics, what about a theory like evolution? Certainly there are many explicitly mathematical aspects to the theory, but is it possible to make predictions about what fossils will be found where without much explicit recourse to mathematics? For example, there’s the famous prediction that no mammal fossils will be found in a pre-Cambrian layer. It also predicts that there will be vestigial organs (e.g. whale “legs”), poorly “designed” biological structures (e.g. the location of the prostate gland, the backwards vertebrate retina (with it’s blind spot) and the recurrent laryngeal nerve), and that once speciation occurs the two branches don’t generally “grow back together” (i.e. they go their separate ways, and certainly don’t start successfully breeding with each other again).

  14. 15 Guerrien August 15, 2015 at 5:21 am

    Three remarks
    – Arrow-Debreu prooved only existence and (pareto) optimality of equilibrium. Not unicity. Remember Sonnenschein,etc. theorem
    – the problem of “price taking” (who set prices ? Who collect individuals’ supplies and demands ? Who “distribute them” ?) is not only for “out of equilibrium” prices, but also at equilibrium
    – there is no money in Arrow Debreu model, and it is impossible to incorporate it without changing completely the model (cf. Franck Hahn). Nobody has tried to do it – I mean in authentic general equilibrium models, not in “representative agent” ridiculous stories

  15. 16 David Glasner August 16, 2015 at 8:50 pm

    Tom, As I said, it’s all a matter of degree

    Thomas, Thanks

    Jason, I am not arguing against the use of mathematics in economics or physics. I am just appalled at the idea that there is nothing useful to say about science except that which can be formulated mathematically. That strikes me, to borrow a phrase from Samuelson’s Foundations, a particularly depraved. There has to be a substantive intuitive understanding of a scientific problem that is independent of the mathematical formulation of the problem, so the idea that any science can be reduced to mathematics is just absurd.

    Tom, I agree that Darwinian theory is an excellent example of an essentially non-mathematical theory, which doesn’t exclude the possibility that there might be a way of formulating the theory in purely mathematical terms, but the judgment about whether a mathematical theory of evolution was worthwhile would have to be made on non-mathematical criteria.

    Guerrien, Thanks, your remarks are all well taken and important.

  16. 17 Tom Brown August 18, 2015 at 2:13 pm

    David, good point. Thanks for the response. Regarding your response to Jason where you write:

    “There has to be a substantive intuitive understanding of a scientific problem that is independent of the mathematical formulation of the problem…”

    Of course you & I agree about the example of evolution, but on the other side of the coin, have you ever seen Richard Feynman explaining quantum mechanics to laymen (like in his Big Sur lectures)? As a layman myself, I really enjoyed it, but he’s adamant that “nobody knows why this is” when explaining QM. I guess that doesn’t preclude developing some sort of intuition for it, but he stressed that he was merely explaining HOW to calculate results (granted with most of the symbolic math replaced by chalk board diagrams to dumb it down for the layman), but not giving any explanation for what was *really* going on (which he admitted he didn’t know himself). It’s been a couple of years since I watched it, but that’s my recollection of his position.

    I have a co-worker who’s a PhD in physics from CalTech, specializing in quantum computers. Based on the interpretations presented in this layman oriented video, I asked him which interpretation of QM he favored:

    1. Bohmian mechanics
    2. Spontaneous collapse
    3. Everettian “many worlds”
    4. Qbism

    After an few moments of his silent contemplation I proposed a 5th option (not presented in the video):

    5. Shut up and calculate.

    Which he immediately selected as the option closest to his views (and maybe Feynman’s as well?). So perhaps it’s not ALWAYS necessary to have an intuitive feeling for what is actually going on to do valuable scientific work? Maybe “shut up and calculate” is sometimes sufficient, especially when it can be demonstrated to work over and over again?

  17. 18 David Glasner August 18, 2015 at 3:03 pm

    Tom, There’s a rather obvious difference between quantum mechanics and modern macroeconomics: quantum mechanics works empirically; modern macroeconomics does not. Why should I be compelled, on completely spurious methodological grounds, to adopt a class of models that are based on ridiculous assumptions and have little or no empirical support just because they can be solved with moderately sophisticated mathematical techniques?

  18. 19 Mitch August 18, 2015 at 9:09 pm

    While I like this post, I think unfortunately that you’ve mangled most of the physics you’re talking about here, not to mention Kuhn. Kuhn’s discussion of Galileo was to point out that in the pre-Galilean paradigm, there was no framework even for the discussion of the concept that the earth went around the sun. It was what you call the worldview (and Kuhn calls the paradigm) is not a matter of duelling models but of essentially non-falsifiable ways of looking at the world. So Kuhn argues that what Galileo is doing is not merely using the same framework to discuss different sets of models, but has attained a completely different way even to figure out what the interesting problems are and what sort of solutions to them to entertain. Absent the Galilean paradigm, it isn’t possible even to see a pendulum in the way Galileo did and thereby to understand it. To fixate on the quality of the evidence Galileo was looking at is missing the point.

    And while I don’t know if Feynman agreed with Kuhn about these matters or not (and not everyone does), the point of Feynman integrity is that it can be very hard to figure out what is wrong with an experiment (or a theory). The person who is best equipped to do it is the author himself. Sure, it’s possible to imagine a science filled with zealots who produce nothing but biased claptrap, with the community separating the wheat from the chaff. But it’s going to be much tougher sledding for everyone, and progress is going to be much, much slower.

    Or, to take your argument to the next level, what is the problem with actual scientific cheating? If your result is actually wrong, surely someone will eventually figure out why and what the right answer is, despite the fact that you cooked the books when you did your experiment… but if it’s right, you’ll get the credit!

    No, the point of Feynman integrity is as a guide for the rest of us to figure out whom to pay attention to. If we think that someone is likely to be ignoring the problems in his own work, why spend time listening to him? There just aren’t enough hours in the day.

  19. 20 Tom Brown August 19, 2015 at 10:41 am


    Without empirical support? No reason at all. But I leave open the possibility (in principle at least) of somebody coming up with a *COMPLETELY* unintuitive macro theoretical framework and means of calculating predictions of observed data which beats the competition by every empirical measure. How funny would that be? I say it would be hilarious! ;^)

  20. 21 Martin August 20, 2015 at 7:46 am

    I am not sure why you think that Lucas’ comment tightly linking theory and mathematical modelling is so obviously silly. Could you elaborate on this? I mean, you say that it would be silly to assume one does not know what one is doing if one cannot express one’s idea about the earth revolving around the sun or vice versa mathematically. But that misses the point IMHO, which is that without a precise mathematical formulation of that model it would indeed be impossible to make predictions that allow a refutation (or validation, if you wish) of a heliocentric worldview. How else would you think it’s possible to do distinguish between the right and the wrong model here? The point about Galileo being exactly that: namely that he could not on the grounds of a full-fledged mathematical model justify his beliefs, which where only later validated by exactly such a model.

  21. 22 David Glasner August 20, 2015 at 10:18 am

    Mitch, Thanks for the nice summary of Kuhn, which I think is basically right and agree with. I wanted to compare Lucas and Galileo as offering radically different world views from their predecessors. But ultimately Galileo and the Copernicans had to deliver some hard evidence to support their way of looking at the world. Lucas on the other hand offers nothing but a methodological assertion that his way is the only to do economics,

    I disagree with you that the author of the experiment is necessarily the best equipped to figure out what is wrong with it. In developing a theory or an experiment that will test a theory, the author of the theory or the experiment may naturally take a partial view of the problem or the interpretation. It is only when challenged that the author will be forced to confront problems that he had not noticed at first. That is why, science is a collaborative (and competitive) enterprise. There is both conjecture and refutation and the refutation need not come from the one with the conjecture.

    I am not defending withholding evidence. I think it is a good thing for authors to make the raw evidence on which they based their published their results freely available to other researchers, and it is deplorable that this became accepted practice only recently. But I think that Feynman’s standards, while admirable, should not be viewed as absolute requirements.

    Tom, There is no reason at all not to leave the possibility open. But I have no reason to think that anyone alive will ever see such a theory.

    Martin, What was silly is the idea that economic theory is nothing but mathematics. I am not arguing against mathematics; mathematics is a tremendously valuable tool which can certainly enrich our understanding, but not every tool works well in every situation, and it requires a certain level of judgment gained through experience to know when a certain tool can be efficaciously deployed in a certain problem situation. And, as I pointed out, Lucas on the very next page after the comment I criticized showed how effectively Friedman deployed non-mathematical economic reasoning in analyzing economic problems. Lucas insists on deploying a certain set of mathematical tools to analyze macroeconomic problems without showing any critical awareness of what extreme assumptions must be made in order for those tools to be capable of rendering solutions to those problems.

  22. 23 Egmont Kakarot-Handtke August 21, 2015 at 5:37 am

    Economics and the litmus test of science
    Comment on ‘Romer v. Lucas’

    You write “My own view is that being personally and emotionally attached to one’s own theories, whether for religious or ideological or other non-scientific reasons, is not necessarily a bad thing as long as there are social mechanisms allowing scientists with different scientific viewpoints an opportunity to make themselves heard.” And “My favorite example of the importance of personal belief in, and commitment to the truth of, one’s own theories is Galileo.”

    Since the Enlightenment everybody knows that science is about knowledge and that religion is about belief. Galileo never pleaded for belief, just the contrary.

    “I shall never be able to express strongly enough my admiration for the greatness of mind of these men who conceived this [heliocentric] hypothesis and held it to be true. In violent opposition to the evidence of their own senses and by sheer force of intellect, they preferred what reason told them to that which sense experience plainly showed them … I repeat, there is no limit to my astonishment when I reflect how Aristarchus and Copernicus were able to let conquer sense, and in defiance of sense make reason the mistress of their belief.” (quoted in Popper, 1994, p. 84)

    All great scientists pleaded for the utmost degree of objectivity and that meant to rule belief, passion, and the other human-all-too-human excuses out. Science is about true/false and that is that.

    “Like Planck, Einstein viewed the human element of any physical theory as essentially arbitrary, something that should be purged on realization of the final true theory.” (Mirowski, 2004, p. 159)

    Galileo was well aware that most of those who pass as scientists are not up to the task.

    “These savants, as Galileo put it, first decided how the world should function in accordance with their preconceived principles. … He openly criticized scientist and philosophers who accepted laws which conformed to their preconceived ideas as to how nature must behave. Nature did not first make men’s brains, he said, and then arrange the world so that it would be acceptable to human intellects.” (Kline, 1982, p. 48)

    Galileo did not excuse incompetence and proto-science with passionate belief. He wanted to throw these guys out of science. And as far as physics is concerned he succeeded. In economics things are a bit different. There is a lot of self-delusion: “Economists think of themselves as scientists, but … they are more like theologians.” (Nelson, 2006, p. xv)

    Genuine scientists like Feynman subsumed economics squarely among the cargo cult sciences. This got not lost with Clower: “Suffice it to say that, in my opinion, what we presently possess by way of so-called pure economic theory is objectively indistinguishable from what the physicist Richard Feynman, in an unflattering sketch of nonsense ‘science,’ called ‘cargo cult science’.” (1994, p. 809)

    Science, we know it from Popper, is ‘conjecture and refutation.’ We know also that conjectures often turn out to be false. And here the great divide between science and mere belief systems becomes clearly visible. The idea of science necessarily includes to accept a refutation. That does not happen in economics.


    The question between New Classics and New Keynesianism has been decided. Both are indefensible. If economics were a science both Romer and Lucas would quietly say Good Bye.

    Egmont Kakarot-Handtke

    Kline, M. (1982). Mathematics. The Loss of Certainty. Oxford, New York, NY: Oxford University Press.
    Mirowski, P. (2004). The Effortless Economy of Science? Durnham, London: Duke University Press.
    Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL http://www.jstor.org/stable/1824735.
    Nelson, R. H. (2006). Economics as Religion: From Samuelson to Chicago and Beyond. Pennsylvania, PA: Pennsylvania State University Press.

  23. 24 Mitch August 21, 2015 at 1:17 pm

    David –

    I don’t think there is much gap between our points of view. but I think that you aren’t really understanding Roatmer’s point. No one, not even Feynman, would claim that integrity requires the author not to like or prefer his experiment. Nor would Feynman (or I) claim that the author *will* find all of the problems in his work – of course it’s a community effort.

    Not everyone can be as careful and forthright as Feynman would like, and that does make them weaker scientists as a result. But Romer is talking about a specific, different approach – one diametrically opposed to Feynman. He calls it Stigler Conviction.


    which he defines with this quote:

    Although … new economic theories are introduced by the technique of the huckster, I should add that they are not the work of mere hucksters. … Instead, the successful inventor is a one-sided man. He is utterly persuaded of the significance and correctness of his ideas and he subordinates all other truths because they seem to him less important than the general acceptance of his truth. He is more a warrior against ignorance than a scholar among ideas. (Stigler 1955, p. 296)

    I believe that such behavior *is* a cardinal sin in a scientist. Every physicist gets letters from someone who claims to have proved that special relativity is wrong. Try talking one of them out of it.

    If even if you can’t succeed at Feynman Integrity, that’s a far cry from actively engaging in hucksterism. And Romer is right that economics as a science would be better off is such people were ignored.

  24. 25 Nanikore August 22, 2015 at 1:39 am


    I would question the the wisdom in invoking Sargent as a riposte to Lucas, if anything he is even more extreme in his views that the answers to the big questions can be found with mathematics and his ‘beautiful’ conception of the world.

    Reading the above paragraph, if neo-classical economics is unhelpful in understanding the economies of where most of the world’s population live and where we most desparately need solutions, or for the biggest crises – like the Great Depression – why has it not been discarded a long time ago? Why do you keep insisting on teaching it? Also as any historian would know, and Keynes emphasised, events leading up the crises and explaining them or almost certainly festering during the so-called ‘normal’ times – that includes the Great Moderation. The criticism that economics failed because it failed to see that coming is a valid criticism of the discipline.

    In fact if the discipline was historically literate, they would not use the term ‘normal times’. They don’t exist.

    One more thing about Sargent. He breaks every rule in the book when it comes to the practice of being an historian. Although he said (and probably many times) “I do not like words, I use models” he did in fact write an ‘historical’ piece in 1981. He attributed the containment of hyperinflation in Germany, Austria, Czechoslovakia, and Poland to the return to commodity money, invoking rational expectations theory. Of course we know the fundamental reasons related to the fact these countries had lost a major war or were severely dislocated, their governments all credibility. The end of hyperinflation occurred when they could return as functioning states with power structures restored. The return to the Gold Standard was just icing on the cake. Similarly he does not consider the importance of power in explaining why extraordinary decisions and their effective mobilisation could be taken at the end of WWII when new power balances were formed, and with them extraordinary authority in the hands of the victor.

    But of course, you cannot put that into a mathematical micro-funded neo-classical model and is therefore ‘unscientific’.

    Economics confuses mathematicisation and internal consistency with science. It is amateurism at its worse. And it has gone on for too long.

  25. 26 Egmont Kakarot-Handtke August 23, 2015 at 6:02 am

    United in confusion
    Comment on Nanikore on ‘Romer v. Lucas’

    You write: “Economics confuses mathematicisation and internal consistency with science. It is amateurism at its worse. And it has gone on for too long.”

    That is not quite correct. Science is defined by its methodology: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31)

    So, one needs always BOTH. Orthodoxy cannot be criticized for insisting on formal consistency but for lacking material consistency.

    What you are proposing as remedy — historicism, sociologism, psychologism — is not the way forward. We know from the examples of Veblen and the German Historical School that this program, too, has produced much storytelling but nothing of real scientific value.

    The failure of Orthodoxy is due to the following set of foundational propositions: “… HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub, 1985, p. 147)

    HC1 is vacuous and HC2 to HC5 lack material consistency. This is sufficient for the refutation of Orthodoxy.

    The whole discussion about formalization and mathiness is beside the point. Science is defined by formal AND material consistency. Economics lacks BOTH. Ergo, economics is not a science. There is no difference between Orthodoxy and Heterodoxy in this respect. The representative economist is a confused confuser (2013), that is all.

    Egmont Kakarot-Handtke

    Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL http://ssrn.com/abstract=2207598

  26. 27 David Glasner August 26, 2015 at 9:38 am

    Egmont, I am not going to try to guess what Galileo was thinking. But obviously his knowledge was limited. Newton had not yet come along, so his “knowledge” was highly imperfect and although he had some good empirical support for his views, the empirical support that he had at the time was less conclusive than the empirical support that we have today.

    I totally agree with the quote from Popper. Galileo uses a speculative theory to arrive at a conjecture about what the world was like. He believed in the theory even though the evidence was in some sense ambiguous.
    I also agree that the scientific status of economics is questionable. But that is not simply the fault of economists for not being more scientific; it is the fault of the world and the subject matter that economists have chosen to study. The relationships are complex and hard to model in a realistic way, and the data are not necessarily very accurate and hard to gather. Demanding that economists behave more scientifically is just an empty exhortation. The present state of economics is deplorable, but ,carping about it serves no purpose. To be useful a criticism must identify what is wrong and suggest how to fix it. It took a long time for physics to graduate from metaphysics to science, and economics is where it is. The task is to improve the quality of economics. If it is improved, it may become more scientific as a consequence, but that will be a by-product of an improved economics. Trying to imitate physics is not the way to improve economics.

    Popper, by the way, did not have an entirely negative view of the scientific status of economics.

    Mitch, See my new post which explains how and why Roamer simply misunderstood what Stigler meant in the quotation you reproduce.

    Nanikore, The quotation you are citing was quoted, not written, by Sargent. The source was Kenneth Arrow. The reason economists keep teaching economics, despite its many shortcomings, is that we don’t have anything that is clearly better to replace it with. That’s too bad, but for the time being at least, we are stuck with the economics we have.

  27. 28 Egmont Kakarot-Handtke August 28, 2015 at 10:07 am

    Whatever it is, let’s call it conservatism
    Comment on David Glasner on ‘Romer v. Lucas’


    In fact, that is not so terribly bad. Economists are rather comfortable with the status quo. “Yet most economists neither seek alternative theories nor believe that they can be found.” (Hausman, 1992, p. 248)

    There are two great puzzles here:
    (i) Why are economists retelling theories knowing very well that what they keep alive is pseudo-scientific junk?
    (ii) Why can Heterodoxy not take advantage of Orthodoxy’s openly admitted shortcomings.

    The answer is that we have political economics and theoretical economics and, unfortunately, the former has hijacked the latter.


    It seems that all camps lack genuine inquirers. Yet, an even better answer is provided by elementary economics, viz., economists stick ‘with the economics we have’ as long as there are bigger fools who happily buy the stuff. And, no surprise, economists can explain everything economically.


    Yes, let us simply euphemize ‘sticking to clearly refuted theories’ as conservatism. It is not that economists are scientifically incompetent and it is not that they have achieved nothing — the truth is that reality is complex. “Given these difficulties it is extraordinary that economics has achieved as much as it has.” (Dow, 2006, p. 51)

    OK, then, standing ovations for sticking conservatively to pseudo-scientific junk.

    Egmont Kakarot-Handtke

    Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism. Skeptical Inquirer, 21(6): 1–7. URL http://www.csicop.org/si/show/science_

  28. 29 stevepostrel August 29, 2015 at 6:48 pm

    These broadbrush criticisms of economics are ludicrous. Historians who write about economics often equivocate and conflate exogenous and endogenous variables so badly that their results are gibberish. Nor do they provide superior prediction, control, or simple explanation than economics. That suffices to explain their displacement from discussions of economic policy. Moreover, if you’re addressing more down-to-earth microeconomic problems, the standard tools are pretty decent, e.g. for estimating tax incidence or the revenue-maximizing subway fare, or figuring out how to match medical residents and medical schools in an efficient way. Finally, the idea that mainstream economists are ideologically wedded to narrow concepts of rationality is refuted by the explosion of “behavioral economics”–psychologist Daniel Kahnemann has stated that economists were more receptive to his theories than his fellow psychologists. More-standard rationality assumptions are often maintained in applied work because the newer models are worse at predicting field phenomena and introduce new free parameters that do not appear to be stable across contexts–the behavioral methods are still at an immature stage though they show promise.

  29. 30 Egmont Kakarot-Handtke August 31, 2015 at 4:52 am

    Disoriented and lost in folk psychology
    Comment on stevepostrel on ‘Romer v. Lucas’

    Economics is a failed science. Economists can not see this because they never understood what science is. The fundamental methodological blunder is located in the commonsensical intuition that economics is first and foremost about human behavior (Hudík, 2011).

    The representative economist cannot get her head around the fact that economics is about the behavior of the economic system. What the behaviorals are talking about belongs entirely to the realm of sociology, psychology, anthropology, political science, history, etcetera. What most behaviorals are practicing is a variant of psycho-sociology that works reasonably well on an easily to overview small scale where not much more than common sense and some readily available statistics is required.

    The subject matter of economics has to be redefined. No way leads from the understanding of human behavior to the understanding of how the actual economy works.

    Methodologically correct economics starts with the systemic behavior of the monetary economy. There are systemic laws, for instance the Profit Law (2015), but no behavioral laws. The economist’s task is to find these objective systemic laws and to empirically verify/falsify them.

    Does the world expect from economists to find out how people behave? Not really, this is the proper job of psychology, sociology, anthropology, political science, history, etcetera. Does the world expect from economists to figure out what profit is? Yes, of course, no philosopher, physicist, biologist, or sociologist will ever do this. Have economists done their proper job? No.* They have wasted more than 200 years with second-guessing their fellow men’s behavior and telling stories that have less real-world content than Greek mythology.

    You say: “These broadbrush criticisms of economics are ludicrous.” What is indeed ludicrous is that economists are so disoriented that they cannot properly define the subject matter of economics and — deeply embarrassing indeed — tell the difference between profit and income, which are indisputably the most important phenomena in their universe. How would you characterize a physicist who cannot tell the difference between velocity/acceleration or force/energy?

    Time for economists to leave the scientific Neanderthal!

    Egmont Kakarot-Handtke

    Economic Methodology, 18(2): 147–162.

  30. 31 David Glasner August 31, 2015 at 10:07 am

    Egmont, You said:

    “There are two great puzzles here:


    (ii) Why can Heterodoxy not take advantage of Orthodoxy’s openly admitted shortcomings.”

    I agree that economic theory has many shortcomings, but that does not imply that economic theory is “pseudo-scientific junk.” It means that the phenomena economists are dealing with are very complex and difficult to model in a realistic and fruitful way.

    And that explains your second puzzle. Heterodoxy cannot take advantage of the deficiencies of current economic theory, because it is very difficult to come up with a satisfactory alternative.

    I also agree that there some perverse incentives at work as well, in the current sociological organization of the economics profession and the criteria that are used to determine professional advancement within in the discipline. And I also think that bad methodology plays a role, but the underlying problem is that the theoretical problems are difficult and complicated and there are lots of technical problems in bringing the data to bear on the theories.

    Steve, I agree with your comment for the most part, but I think that there are large areas of economics where our understanding is pretty meagre and our models very inadequate.

    Egmont, I have not had a chance to look at your paper. You have uploaded a number of papers on SSRN, have you published anything yet or gotten any feedback from the professional economists that you are so displeased with?

  31. 32 Egmont Kakarot-Handtke September 1, 2015 at 4:41 am

    Quod erat demonstrandum
    Comment on David Glasner on ‘Romer v. Lucas’

    You say: “I agree that economic theory has many shortcomings, but that does not imply that economic theory is ‘pseudo-scientific junk’.”

    I have dealt with this evasive argument already under the title ‘The philosophy of know-nothingers’.* What I agree upon is that it is perhaps more to the point to speak of cargo cult science or farce as Feynman did (see blog post Tavares, 2014).

    Science is about logical and material consistency (Klant, 1994, p. 31). Now, it can be rigorously demonstrated that standard economics lacks logical consistency and from this follows straightforwardly that it is out of science.

    It is sufficient to take Keynes as concrete example and then to generalize. As a centerpiece of his General Theory he formulated the foundational syllogism of macroeconomics. “Income = value of output = consumption + investment. Saving = income – consumption. Therefore saving = investment.” (1973, p. 63)

    This elementary two-liner is conceptually and logically defective because Keynes did not come to grips with profit. “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson and Bezemer, 2010, pp. 12-13, 16)

    The fault in Keynes’s two-liner is in the premise ‘income = value of output’. This equality holds only in the limiting case of zero profit in both the consumption and investment good industry. Hence, Keynes dealt with a zero profit economy without being aware of it (2011). Curiously, Walras’s original model has also been a zero profit economy. Both approaches are not very ‘realistic’ to say the least.

    It holds in general: “A satisfactory theory of profits is still elusive.” (Desai, 2008, p. 10). It is pretty obvious that economists know nothing about how the actual monetary economy works when they cannot tell what profit is. A logically and materially consistent profit theory is the first scientific hurdle economics has to take. It did not, and this is a provable fact.

    The problem of economics is not that this or that model is insufficient or unrealistic or oversimplified or whatever euphemism is used. The fact is that economics as a whole is a failure. And the ultimate reason is that it is built upon false premises.

    In sum, all theories/models that take one or more of the following concepts into the premises are scientifically worthless: utility, expected utility, rationality/bounded rationality/animal spirits, equilibrium, constrained optimization, well-behaved production functions/fixation on decreasing returns, supply/demand functions, simultaneous adaptation, rational expectation, total income=value of output/I=S, real-number quantities/prices, and ergodicity. All these items are economic nonentities.

    From an economist who accepts one of these premises nothing of scientific value is to be expected. And this why economics is caught since more than 200 years in the proto-scientific cul-de-sac. Given this abysmal logical performance, it is a matter of indifference whether the peer-reviewed representative economist realizes, understands, or accepts this.

    Egmont Kakarot-Handtke

    (Eds.), The New Palgrave Dictionary of Economics Online, pages 1–11. Palgrave Macmillan, 2nd edition. URL http://www.dictionaryofeconomics.com/article?id=pde2008_P000213.
    Tavares, E. (2014). The Farce That Is Economics: Richard Feynman On The Social Sciences. Zerohedge. URL http://www.zerohedge.com/news/2014-10-18/farce-economics-richard-feynman-social-sciences.
    Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL http://mpra.ub.uni-muenchen.de/20557/

    * See http://axecorg.blogspot.de/2015/08/the-philosophy-of-know-nothingers.html

    For the bigger picture see cross-references ‘Incompetence’

  32. 33 David Glasner September 1, 2015 at 10:09 am

    Egmont, You are obviously a very diligent commenter, but I don’t see this conversation leading anywhere. You are taking an aggressive posture asserting that you have discovered that economics is a pseudo-science and economists are frauds. If that’s what you think, I wish you good luck in trying to convince the public of your views, but I don’t think that you are likely to convince me, and your rhetorical style is certainly not enhancing my desire to try to understand your arguments.

  33. 34 Egmont Kakarot-Handtke September 1, 2015 at 1:28 pm

    David, Thank you for accepting my comments on your blog.

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David Glasner
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