The economics profession’s simultaneous love for rigor and contempt for realism
Paul Krugman ("The New Economic Geography, Now Middle-Aged"), arguing in favor of economists' tendency to simplify and go abstract, to use mathematical modeling and quantitative methods: "The geographers themselves probably won't like this: the economics profession's simultaneous love for rigor and contempt for realism will surely prove infuriating."
I don't think he's fair to himself with the phrase "contempt for realism." Using simplified models and getting surprising results and coming up with explanations that no one had previously thought of and then checking those explanations and results against messy reality to see if they can be applied doesn't seem like contempt for realism, just an effort to see potential patterns in the forest without being overly distracted by trees. As long as you don't fetishize the math - as long as you don't decide that, because your results have numbers and therefore feel precise, they must be right - there's no inherent contempt. My guess is that whole swaths of the "social sciences," including some that have relevance to economics, will never successfully be modeled, but that doesn't mean we shouldn't learn from where the modeling seems to work and seems to promise better things.
I'm thinking of this in relation to my post several days ago on the subject of economists and philosophers failing to talk about what they say they're talking about. Paul Krugman isn't someone Daniel Davies has in mind when Davies decries "pointless formalism" in economics. In fact he says in a comment thread, "If you're Krugman, or Stiglitz or James Heckman or Larry Summers, then it's practically de rigeur to complain about abstraction." But Davies says, not about Krugman and ilk, "The problem with neoclassical economics and high theory wasn't that people stopped dealing with economic questions at all - even at the highest levels of High Theory, you would find guys who genuinely believed that they were writing about international trade, or industrial organisation. The problem was that they basically weren't - the level of abstraction that they had reached was such that all of their effort was devoted to solving problems which were actually features of the formalism they'd adopted.... I think the problem is not really one of the relationship between philosophy and 'real-world' disciplines, but one of abstraction per se, and the ever-present danger of abstract theorists to disappear down blind alleys of their own construction." And later: "When I'm talking about pathologies of neoclassical economics, I'm aware of Krugman and Stiglitz, but I don't regard their existence and importance as a refutation of the broad and accurate criticisms of economics as a pathologically abstract discipline." But as I said I don't think the pathology is abstraction, just the inability to hook the abstractions up to anything that matters - and you don't necessarily know if your alley is blind or not when you're in it: Kepler had no way of knowing that his attempts to relate planetary orbits and musical harmonies weren't going to get the world anywhere in the long-term; but these attempts weren't different in kind from his attempt to relate the speed of a planet to its location on its orbital path and to find the simplest possible model for such paths.
Anyhow, to Krugman:
Until the 1930s and to some extent into the 1940s, institutional economics, with a strong emphasis on "historico-institutional factors," was a major force in American economics. But when the Depression struck, there was a desperate need for answers - and the answers wanted were to the question, "What do we do?" not "How did we get here?" Faced with that question, the institutional economists couldn't deliver; all they could offer was, well, persuasive discourse on the complex historical roots of the problem.
The person who did deliver was John Maynard Keynes. Now, Keynes is a protean figure, whose writings can be read to provide support for many schools of thought. But The General Theory of Employment, Interest and Money, despite occasional historical asides, essentially presents an abstract, ahistorical model of the economy; at its core is a little two-equation equilibrium model of the level of employment. And here's the thing: Keynesian economics, unlike institutional economics, was able to answer the question about what to do: it told you to boost demand with deficit spending.
. . .
What mainstream economists want is the ability to answer "what if" questions: if something were different, how would that change the economic outcomes? That's a kind of question that's almost by definition impossible to answer if your approach emphasizes the uniqueness of each individual case and the specifics of history. But it's very much the kind of question that the new economic geography was intended to answer. Indeed, what I saw as the big result in Krugman (1991b) was precisely the model's implication that the geographical structure of the economy depended on a few key parameters: transportation costs, economies of scale, and factor mobility.
To be honest, I don't understand the mindset of those who disdain the search for general conclusions about geography (or anything else) on principle. Surely the goal of all scholarship is ultimately to provide an understanding of the principles that govern the world, which necessarily means developing models on which one can perform thought experiments, asking "How would things be different if X happened instead of Y?" What I can appreciate is the argument that attempts at general modeling are premature, that we need an accretion of detail before we can get to the abstract modeling stage. But I realize that this instrumental view of ground-level scholarship, the idea that it's all about paving a road to some higher abstraction, isn't something everyone shares. So be it.
That last bit - that surely the goal of all scholarship is ultimately to provide an understanding of the principles that govern the world, that ground-level scholarship is all about paving a road to some higher abstraction - is absurd. But this doesn't mean that achieving "higher abstraction" isn't worthwhile, though "useful generalization" is probably a better term.
I don't think he's fair to himself with the phrase "contempt for realism." Using simplified models and getting surprising results and coming up with explanations that no one had previously thought of and then checking those explanations and results against messy reality to see if they can be applied doesn't seem like contempt for realism, just an effort to see potential patterns in the forest without being overly distracted by trees. As long as you don't fetishize the math - as long as you don't decide that, because your results have numbers and therefore feel precise, they must be right - there's no inherent contempt. My guess is that whole swaths of the "social sciences," including some that have relevance to economics, will never successfully be modeled, but that doesn't mean we shouldn't learn from where the modeling seems to work and seems to promise better things.
I'm thinking of this in relation to my post several days ago on the subject of economists and philosophers failing to talk about what they say they're talking about. Paul Krugman isn't someone Daniel Davies has in mind when Davies decries "pointless formalism" in economics. In fact he says in a comment thread, "If you're Krugman, or Stiglitz or James Heckman or Larry Summers, then it's practically de rigeur to complain about abstraction." But Davies says, not about Krugman and ilk, "The problem with neoclassical economics and high theory wasn't that people stopped dealing with economic questions at all - even at the highest levels of High Theory, you would find guys who genuinely believed that they were writing about international trade, or industrial organisation. The problem was that they basically weren't - the level of abstraction that they had reached was such that all of their effort was devoted to solving problems which were actually features of the formalism they'd adopted.... I think the problem is not really one of the relationship between philosophy and 'real-world' disciplines, but one of abstraction per se, and the ever-present danger of abstract theorists to disappear down blind alleys of their own construction." And later: "When I'm talking about pathologies of neoclassical economics, I'm aware of Krugman and Stiglitz, but I don't regard their existence and importance as a refutation of the broad and accurate criticisms of economics as a pathologically abstract discipline." But as I said I don't think the pathology is abstraction, just the inability to hook the abstractions up to anything that matters - and you don't necessarily know if your alley is blind or not when you're in it: Kepler had no way of knowing that his attempts to relate planetary orbits and musical harmonies weren't going to get the world anywhere in the long-term; but these attempts weren't different in kind from his attempt to relate the speed of a planet to its location on its orbital path and to find the simplest possible model for such paths.
Anyhow, to Krugman:
Until the 1930s and to some extent into the 1940s, institutional economics, with a strong emphasis on "historico-institutional factors," was a major force in American economics. But when the Depression struck, there was a desperate need for answers - and the answers wanted were to the question, "What do we do?" not "How did we get here?" Faced with that question, the institutional economists couldn't deliver; all they could offer was, well, persuasive discourse on the complex historical roots of the problem.
The person who did deliver was John Maynard Keynes. Now, Keynes is a protean figure, whose writings can be read to provide support for many schools of thought. But The General Theory of Employment, Interest and Money, despite occasional historical asides, essentially presents an abstract, ahistorical model of the economy; at its core is a little two-equation equilibrium model of the level of employment. And here's the thing: Keynesian economics, unlike institutional economics, was able to answer the question about what to do: it told you to boost demand with deficit spending.
. . .
What mainstream economists want is the ability to answer "what if" questions: if something were different, how would that change the economic outcomes? That's a kind of question that's almost by definition impossible to answer if your approach emphasizes the uniqueness of each individual case and the specifics of history. But it's very much the kind of question that the new economic geography was intended to answer. Indeed, what I saw as the big result in Krugman (1991b) was precisely the model's implication that the geographical structure of the economy depended on a few key parameters: transportation costs, economies of scale, and factor mobility.
To be honest, I don't understand the mindset of those who disdain the search for general conclusions about geography (or anything else) on principle. Surely the goal of all scholarship is ultimately to provide an understanding of the principles that govern the world, which necessarily means developing models on which one can perform thought experiments, asking "How would things be different if X happened instead of Y?" What I can appreciate is the argument that attempts at general modeling are premature, that we need an accretion of detail before we can get to the abstract modeling stage. But I realize that this instrumental view of ground-level scholarship, the idea that it's all about paving a road to some higher abstraction, isn't something everyone shares. So be it.
That last bit - that surely the goal of all scholarship is ultimately to provide an understanding of the principles that govern the world, that ground-level scholarship is all about paving a road to some higher abstraction - is absurd. But this doesn't mean that achieving "higher abstraction" isn't worthwhile, though "useful generalization" is probably a better term.