Romer v. Lucas

A couple of months ago, Paul Romer created a stir by publishing a paper in the American Economic Review “Mathiness in the Theory of Economic Growth,” an attack on two papers, one by McGrattan and Prescott and the other by Lucas and Moll on aspects of growth theory. He accused the authors of those papers of using mathematical modeling as a cover behind which to hide assumptions guaranteeing results by which the authors could promote their research agendas. In subsequent blog posts, Romer has sharpened his attack, focusing it more directly on Lucas, whom he accuses of a non-scientific attachment to ideological predispositions that have led him to violate what he calls Feynman integrity, a concept eloquently described by Feynman himself in a 1974 commencement address at Caltech.

It’s a kind of scientific integrity, a principle of scientific thought that corresponds to a kind of utter honesty–a kind of leaning over backwards. For example, if you’re doing an experiment, you should report everything that you think might make it invalid–not only what you think is right about it: other causes that could possibly explain your results; and things you thought of that you’ve eliminated by some other experiment, and how they worked–to make sure the other fellow can tell they have been eliminated.

Details that could throw doubt on your interpretation must be given, if you know them. You must do the best you can–if you know anything at all wrong, or possibly wrong–to explain it. If you make a theory, for example, and advertise it, or put it out, then you must also put down all the facts that disagree with it, as well as those that agree with it. There is also a more subtle problem. When you have put a lot of ideas together to make an elaborate theory, you want to make sure, when explaining what it fits, that those things it fits are not just the things that gave you the idea for the theory; but that the finished theory makes something else come out right, in addition.

Romer contrasts this admirable statement of what scientific integrity means with another by George Stigler, seemingly justifying, or at least excusing, a kind of special pleading on behalf of one’s own theory. And the institutional and perhaps ideological association between Stigler and Lucas seems to suggest that Lucas is inclined to follow the permissive and flexible Stiglerian ethic rather than rigorous Feynman standard of scientific integrity. Romer regards this as a breach of the scientific method and a step backward for economics as a science.

I am not going to comment on the specific infraction that Romer accuses Lucas of having committed; I am not familiar with the mathematical question in dispute. Certainly if Lucas was aware that his argument in the paper Romer criticizes depended on the particular mathematical assumption in question, Lucas should have acknowledged that to be the case. And even if, as Lucas asserted in responding to a direct question by Romer, he could have derived the result in a more roundabout way, then he should have pointed that out, too. However, I don’t regard the infraction alleged by Romer to be more than a misdemeanor, hardly a scandalous breach of the scientific method.

Why did Lucas, who as far as I can tell was originally guided by Feynman integrity, switch to the mode of Stigler conviction? Market clearing did not have to evolve from auxiliary hypothesis to dogma that could not be questioned.

My conjecture is economists let small accidents of intellectual history matter too much. If we had behaved like scientists, things could have turned out very differently. It is worth paying attention to these accidents because doing so might let us take more control over the process of scientific inquiry that we are engaged in. At the very least, we should try to reduce the odds that that personal frictions and simple misunderstandings could once again cause us to veer off on some damaging trajectory.

I suspect that it was personal friction and a misunderstanding that encouraged a turn toward isolation (or if you prefer, epistemic closure) by Lucas and colleagues. They circled the wagons because they thought that this was the only way to keep the rational expectations revolution alive. The misunderstanding is that Lucas and his colleagues interpreted the hostile reaction they received from such economists as Robert Solow to mean that they were facing implacable, unreasoning resistance from such departments as MIT. In fact, in a remarkably short period of time, rational expectations completely conquered the PhD program at MIT.

More recently Romer, having done graduate work both at MIT and Chicago in the late 1970s, has elaborated on the personal friction between Solow and Lucas and how that friction may have affected Lucas, causing him to disengage from the professional mainstream. Paul Krugman, who was at MIT when this nastiness was happening, is skeptical of Romer’s interpretation.

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. If there are such mechanisms, the need for Feynman integrity is minimized, because individual lapses of integrity will be exposed and remedied by criticism from other scientists; scientific progress is possible even if scientists don’t live up to the Feynman standards, and maintain their faith in their theories despite contradictory evidence. But, as I am going to suggest below, there are reasons to doubt that social mechanisms have been operating to discipline – not suppress, just discipline – dubious economic theorizing.

My favorite example of the importance of personal belief in, and commitment to the truth of, one’s own theories is Galileo. As discussed by T. S. Kuhn in The Structure of Scientific Revolutions. Galileo was arguing for a paradigm change in how to think about the universe, despite being confronted by empirical evidence that appeared to refute the Copernican worldview he believed in: the observations that the sun revolves around the earth, and that the earth, as we directly perceive it, is, apart from the occasional earthquake, totally stationary — good old terra firma. Despite that apparently contradictory evidence, Galileo had an alternative vision of the universe in which the obvious movement of the sun in the heavens was explained by the spinning of the earth on its axis, and the stationarity of the earth by the assumption that all our surroundings move along with the earth, rendering its motion imperceptible, our perception of motion being relative to a specific frame of reference.

At bottom, this was an almost metaphysical world view not directly refutable by any simple empirical test. But Galileo adopted this worldview or paradigm, because he deeply believed it to be true, and was therefore willing to defend it at great personal cost, refusing to recant his Copernican view when he could have easily appeased the Church by describing the Copernican theory as just a tool for predicting planetary motion rather than an actual representation of reality. Early empirical tests did not support heliocentrism over geocentrism, but Galileo had faith that theoretical advancements and improved measurements would eventually vindicate the Copernican theory. He was right of course, but strict empiricism would have led to a premature rejection of heliocentrism. Without a deep personal commitment to the Copernican worldview, Galileo might not have articulated the case for heliocentrism as persuasively as he did, and acceptance of heliocentrism might have been delayed for a long time.

Imre Lakatos called such deeply-held views underlying a scientific theory the hard core of the theory (aka scientific research program), a set of beliefs that are maintained despite apparent empirical refutation. The response to any empirical refutation is not to abandon or change the hard core but to adjust what Lakatos called the protective belt of the theory. Eventually, as refutations or empirical anomalies accumulate, the research program may undergo a crisis, leading to its abandonment, or it may simply degenerate if it fails to solve new problems or discover any new empirical facts or regularities. So Romer’s criticism of Lucas’s dogmatic attachment to market clearing – Lucas frequently makes use of ad hoc price stickiness assumptions; I don’t know why Romer identifies market-clearing as a Lucasian dogma — may be no more justified from a history of science perspective than would criticism of Galileo’s dogmatic attachment to heliocentrism.

So while I have many problems with Lucas, lack of Feynman integrity is not really one of them, certainly not in the top ten. What I find more disturbing is his narrow conception of what economics is. As he himself wrote in an autobiographical sketch for Lives of the Laureates, he was bewitched by the beauty and power of Samuelson’s Foundations of Economic Analysis when he read it the summer before starting his training as a graduate student at Chicago in 1960. Although it did not have the transformative effect on me that it had on Lucas, I greatly admire the Foundations, but regardless of whether Samuelson himself meant to suggest such an idea (which I doubt), it is absurd to draw this conclusion from it:

I loved the Foundations. Like so many others in my cohort, I internalized its view that if I couldn’t formulate a problem in economic theory mathematically, I didn’t know what I was doing. I came to the position that mathematical analysis is not one of many ways of doing economic theory: It is the only way. Economic theory is mathematical analysis. Everything else is just pictures and talk.

Oh, come on. 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 mathematically, you don’t know what you are doing? And, yet, remarkably, on the page following that silly assertion, one finds a totally brilliant description of what it was like to take graduate price theory from Milton Friedman.

Friedman rarely lectured. His class discussions were often structured as debates, with student opinions or newspaper quotes serving to introduce a problem and some loosely stated opinions about it. Then Friedman would lead us into a clear statement of the problem, considering alternative formulations as thoroughly as anyone in the class wanted to. Once formulated, the problem was quickly analyzed—usually diagrammatically—on the board. So we learned how to formulate a model, to think about and decide which features of a problem we could safely abstract from and which he needed to put at the center of the analysis. Here “model” is my term: It was not a term that Friedman liked or used. I think that for him talking about modeling would have detracted from the substantive seriousness of the inquiry we were engaged in, would divert us away from the attempt to discover “what can be done” into a merely mathematical exercise. [my emphasis].

Despite his respect for Friedman, it’s clear that Lucas did not adopt and internalize Friedman’s approach to economic problem solving, but instead internalized the caricature he extracted from Samuelson’s Foundations: that mathematical analysis is the only legitimate way of doing economic theory, and that, in particular, the essence of macroeconomics consists in a combination of axiomatic formalism and philosophical reductionism (microfoundationalism). For Lucas, the only scientifically legitimate macroeconomic models are those that can be deduced from the axiomatized Arrow-Debreu-McKenzie general equilibrium model, with solutions that can be computed and simulated in such a way that the simulations can be matched up against the available macroeconomics time series on output, investment and consumption.

This was both bad methodology and bad science, restricting the formulation of economic problems to those for which mathematical techniques are available to be deployed in finding solutions. On the one hand, the rational-expectations assumption made finding solutions to certain intertemporal models tractable; on the other, the assumption was justified as being required by the rationality assumptions of neoclassical price theory.

In a recent review of Lucas’s Collected Papers on Monetary Theory, Thomas Sargent makes a fascinating reference to Kenneth Arrow’s 1967 review of the first two volumes of Paul Samuelson’s Collected Works in which Arrow referred to the problematic nature of the neoclassical synthesis of which Samuelson was a chief exponent.

Samuelson has not addressed himself to one of the major scandals of current price theory, the relation between microeconomics and macroeconomics. Neoclassical microeconomic equilibrium with fully flexible prices presents a beautiful picture of the mutual articulations of a complex structure, full employment being one of its major elements. What is the relation between this world and either the real world with its recurrent tendencies to unemployment of labor, and indeed of capital goods, or the Keynesian world of underemployment equilibrium? The most explicit statement of Samuelson’s position that I can find is the following: “Neoclassical analysis permits of fully stable underemployment equilibrium only on the assumption of either friction or a peculiar concatenation of wealth-liquidity-interest elasticities. . . . [The neoclassical analysis] goes far beyond the primitive notion that, by definition of a Walrasian system, equilibrium must be at full employment.” . . .

In view of the Phillips curve concept in which Samuelson has elsewhere shown such interest, I take the second sentence in the above quotation to mean that wages are stationary whenever unemployment is X percent, with X positive; thus stationary unemployment is possible. In general, one can have a neoclassical model modified by some elements of price rigidity which will yield Keynesian-type implications. But such a model has yet to be constructed in full detail, and the question of why certain prices remain rigid becomes of first importance. . . . Certainly, as Keynes emphasized the rigidity of prices has something to do with the properties of money; and the integration of the demand and supply of money with general competitive equilibrium theory remains incomplete despite attempts beginning with Walras himself.

If the neoclassical model with full price flexibility were sufficiently unrealistic that stable unemployment equilibrium be possible, then in all likelihood the bulk of the theorems derived by Samuelson, myself, and everyone else from the neoclassical assumptions are also contrafactual. The problem is not resolved by what Samuelson has called “the neoclassical synthesis,” in which it is held that the achievement of full employment requires Keynesian intervention but that neoclassical theory is valid when full employment is reached. . . .

Obviously, I believe firmly that the mutual adjustment of prices and quantities represented by the neoclassical model is an important aspect of economic reality worthy of the serious analysis that has been bestowed on it; and certain dramatic historical episodes – most recently the reconversion of the United States from World War II and the postwar European recovery – suggest that an economic mechanism exists which is capable of adaptation to radical shifts in demand and supply conditions. On the other hand, the Great Depression and the problems of developing countries remind us dramatically that something beyond, but including, neoclassical theory is needed.

Perhaps in a future post, I may discuss this passage, including a few sentences that I have omitted here, in greater detail. For now I will just say that Arrow’s reference to a “neoclassical microeconomic equilibrium with fully flexible prices” seems very strange inasmuch as price flexibility has absolutely no role in the proofs of the existence of a competitive general equilibrium for which Arrow and Debreu and McKenzie are justly famous. All the theorems Arrow et al. proved about the neoclassical equilibrium were related to existence, uniqueness and optimaiity of an equilibrium supported by an equilibrium set of prices. Price flexibility was not involved in those theorems, because the theorems had nothing to do with how prices adjust in response to a disequilibrium situation. What makes this juxtaposition of neoclassical microeconomic equilibrium with fully flexible prices even more remarkable is that about eight years earlier Arrow wrote a paper (“Toward a Theory of Price Adjustment”) whose main concern was the lack of any theory of price adjustment in competitive equilibrium, about which I will have more to say below.

Sargent also quotes from two lectures in which Lucas referred to Don Patinkin’s treatise Money, Interest and Prices which provided perhaps the definitive statement of the neoclassical synthesis Samuelson espoused. In one lecture (“My Keynesian Education” presented to the History of Economics Society in 2003) Lucas explains why he thinks Patinkin’s book did not succeed in its goal of integrating value theory and monetary theory:

I think Patinkin was absolutely right to try and use general equilibrium theory to think about macroeconomic problems. Patinkin and I are both Walrasians, whatever that means. I don’t see how anybody can not be. It’s pure hindsight, but now I think that Patinkin’s problem was that he was a student of Lange’s, and Lange’s version of the Walrasian model was already archaic by the end of the 1950s. Arrow and Debreu and McKenzie had redone the whole theory in a clearer, more rigorous, and more flexible way. Patinkin’s book was a reworking of his Chicago thesis from the middle 1940s and had not benefited from this more recent work.

In the other lecture, his 2003 Presidential address to the American Economic Association, Lucas commented further on why Patinkin fell short in his quest to unify monetary and value theory:

When Don Patinkin gave his Money, Interest, and Prices the subtitle “An Integration of Monetary and Value Theory,” value theory meant, to him, a purely static theory of general equilibrium. Fluctuations in production and employment, due to monetary disturbances or to shocks of any other kind, were viewed as inducing disequilibrium adjustments, unrelated to anyone’s purposeful behavior, modeled with vast numbers of free parameters. For us, today, value theory refers to models of dynamic economies subject to unpredictable shocks, populated by agents who are good at processing information and making choices over time. The macroeconomic research I have discussed today makes essential use of value theory in this modern sense: formulating explicit models, computing solutions, comparing their behavior quantitatively to observed time series and other data sets. As a result, we are able to form a much sharper quantitative view of the potential of changes in policy to improve peoples’ lives than was possible a generation ago.

So, as Sargent observes, Lucas recreated an updated neoclassical synthesis of his own based on the intertemporal Arrow-Debreu-McKenzie version of the Walrasian model, augmented by a rationale for the holding of money and perhaps some form of monetary policy, via the assumption of credit-market frictions and sticky prices. Despite the repudiation of the updated neoclassical synthesis by his friend Edward Prescott, for whom monetary policy is irrelevant, Lucas clings to neoclassical synthesis 2.0. Sargent quotes this passage from Lucas’s 1994 retrospective review of A Monetary History of the US by Friedman and Schwartz to show how tightly Lucas clings to neoclassical synthesis 2.0 :

In Kydland and Prescott’s original model, and in many (though not all) of its descendants, the equilibrium allocation coincides with the optimal allocation: Fluctuations generated by the model represent an efficient response to unavoidable shocks to productivity. One may thus think of the model not as a positive theory suited to all historical time periods but as a normative benchmark providing a good approximation to events when monetary policy is conducted well and a bad approximation when it is not. Viewed in this way, the theory’s relative success in accounting for postwar experience can be interpreted as evidence that postwar monetary policy has resulted in near-efficient behavior, not as evidence that money doesn’t matter.

Indeed, the discipline of real business cycle theory has made it more difficult to defend real alternaltives to a monetary account of the 1930s than it was 30 years ago. It would be a term-paper-size exercise, for example, to work out the possible effects of the 1930 Smoot-Hawley Tariff in a suitably adapted real business cycle model. By now, we have accumulated enough quantitative experience with such models to be sure that the aggregate effects of such a policy (in an economy with a 5% foreign trade sector before the Act and perhaps a percentage point less after) would be trivial.

Nevertheless, in the absence of some catastrophic error in monetary policy, Lucas evidently believes that the key features of the Arrow-Debreu-McKenzie model are closely approximated in the real world. That may well be true. But if it is, Lucas has no real theory to explain why.

In his 1959 paper (“Towards a Theory of Price Adjustment”) I just mentioned, Arrow noted that the theory of competitive equilibrium has no explanation of how equilibrium prices are actually set. Indeed, the idea of competitive price adjustment is beset by a paradox: all agents in a general equilibrium being assumed to be price takers, how is it that a new equilibrium price is ever arrived at following any disturbance to an initial equilibrium? Arrow had no answer to the question, but offered the suggestion that, out of equilibrium, agents are not price takers, but price searchers, possessing some measure of market power to set price in the transition between the old and new equilibrium. But the upshot of Arrow’s discussion was that the problem and the paradox awaited solution. Almost sixty years on, some of us are still waiting, but for Lucas and the Lucasians, there is neither problem nor paradox, because the actual price is the equilibrium price, and the equilibrium price is always the (rationally) expected price.

If the social functions of science were being efficiently discharged, this rather obvious replacement of problem solving by question begging would not have escaped effective challenge and opposition. But Lucas was able to provide cover for this substitution by persuading the profession to embrace his microfoundational methodology, while offering irresistible opportunities for professional advancement to younger economists who could master the new analytical techniques that Lucas and others were rapidly introducing, thereby neutralizing or coopting many of the natural opponents to what became modern macroeconomics. So while Romer considers the conquest of MIT by the rational-expectations revolution, despite the opposition of Robert Solow, to be evidence for the advance of economic science, I regard it as a sign of the social failure of science to discipline a regressive development driven by the elevation of technique over substance.


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:

    “The first principle is that you must not fool yourself — and you are the easiest person to fool.”


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

    “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 mathematically, you don’t know what you are doing?”

    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

    “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?”

    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.

    “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern, 1941, pp. 369-370)

    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

    Clower, R. W. (1994). Economics as an Inductive Science. Southern Economic Journal, 60(4): 805–814.
    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
    Nelson, R. H. (2006). Economics as Religion: From Samuelson to Chicago and Beyond. Pennsylvania, PA: Pennsylvania State University Press.
    Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality., chapter Science: Problems, Aims, Responsibilities, pages 82–111. London, New York, NY: Routledge.


  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

    “certain dramatic historical episodes – most recently the reconversion of the United States from World War II and the postwar European recovery – suggest that an economic mechanism exists which is capable of adaptation to radical shifts in demand and supply conditions. On the other hand, the Great Depression and the problems of developing countries remind us dramatically that something beyond, but including, neoclassical theory is needed.”

    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
    Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.
    Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL


  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’

    You write: “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.”

    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.

    “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. … A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent. (Haack, 1997, p. 1)

    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.

    “Gary Becker has suggested that a substantial resistance to the acceptance of new ideas by scientists can be explained by two familiar economic concepts. One is the concept of specific human capital: the established scholar possesses a valuable capital asset in his command over a particular body of knowledge. That capital would be reduced if his knowledge were made obsolete by the general acceptance of a new theory. Hence, established scholars should, in their own self-interest, attack new theories, possibly even more than they do in the absence of joint action. The second concept is risk aversion, which leads young scholars to prefer mastery of established theories to seeking radically different theories. Scientific innovators, like adventurers in general, are probably not averse to risk, but for the mass of scholars in a discipline, risk aversion is a strong basis for scientific conservatism.” (Stigler, 1983, p. 538)

    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

    Dow, S. C. (2006). Economic Methodology: An Inquiry. Oxford: Oxford University Press.
    Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism. Skeptical Inquirer, 21(6): 1–7. URL
    Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
    Stigler, G. J. (1983). Nobel Lecture: The Process and Progress of Economics. Journal of Political Economy, 91(4): 529–545. URL


  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

    Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of
    Economic Methodology, 18(2): 147–162.
    Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Profit. SSRN Working Paper Series, 2575110: 1–18. URL


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

    Egmont, You said:

    “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.”

    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

    Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume
    (Eds.), The New Palgrave Dictionary of Economics Online, pages 1–11. Palgrave Macmillan, 2nd edition. URL
    Kakarot-Handtke, E. (2011). Keynes’s Missing Axioms. SSRN Working Paper Series, 1841408: 1–33. URL
    Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
    Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.
    Tavares, E. (2014). The Farce That Is Economics: Richard Feynman On The Social Sciences. Zerohedge. URL
    Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and
    Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL

    * See

    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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About Me

David Glasner
Washington, DC

I am an economist in the Washington DC area. My research and writing has been mostly on monetary economics and policy and the history of economics. In my book Free Banking and Monetary Reform, I argued for a non-Monetarist non-Keynesian approach to monetary policy, based on a theory of a competitive supply of money. Over the years, I have become increasingly impressed by the similarities between my approach and that of R. G. Hawtrey and hope to bring Hawtrey’s unduly neglected contributions to the attention of a wider audience.

My new book Studies in the History of Monetary Theory: Controversies and Clarifications has been published by Palgrave Macmillan

Follow me on Twitter @david_glasner


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