Realist, not conformist analysis of the latest financial, business and political news

Just Who Should We Believe On Economics, No, Really, Who?

A Richard Murphy

There are many ideas out there. Some of those ideas might be true and most of them will be wrong. This requires, if we are to make sense of that human capital that is civilisation, that we have a method of working out which is which. It is not necessary for an idea to be reality, of course it isn’t. Models and close approximations work well enough most of the time. We know that Newtonian physics isn’t quite, wholly, correct but it’s enough to get a spaceship to the Moon. Getting it to the right place on Mercury might require that closer to the truth approximation from Einstein. But Newton’s good enough for most uses.

However, sometimes folks are just so wrong that we need to think seriously about rejecting everything else they say. If they can misunderstand the one thing so badly then how much weight should we put on their views upon anything else?

At which point Richard Murphy’s new book on economics:

The type of economics that I address in this thread and
chapter is what is described as macroeconomics. This is
that part of economics that deals with the economies of
countries and governments. It also addresses issues such
as government income and spending, and so tax, as well as
the national debt, the role of central banks, inflation and
the balance of trade.

It is an aspect of economics that, despite its importance,
engages only a very small part of the economics profession.
The vast majority of economists deal with microeconomics.
That part of economics deals with the behaviour of
individuals, companies and markets.

Economists like microeconomics because it can be used to
construct deeply theoretical, largely mathematical, models
of behaviour that, if truth be told, tell us very little at all
about how real people, companies or markets behave. That
is because of the simplifying assumptions that too many
economists use in the course of their work.

Those assumptions assure them of two things. The first is
that their maths works, which is of greatest significance to
them. Second, it guarantees that they produce outcomes
that show markets are invariably more efficient than
governments, which is something far too many economists
set out to prove in their own particular way.

I am not saying microeconomics is not important. I think
it is, but not in the way that many economists do it. I just
happen to think macroeconomics is more important. And
I discuss it as a matter of preference because far too much
of what is said about macroeconomics is quite explicitly
based on microeconomic thinking that, as a result,
reproduces the result that microeconomics is set up to
deliver, which is that government is not as efficient as

I approach the subject differently.

Well, yes, that does seem to be true, that approaching the subject differently. The insistence there is that microeconomics is too much in thrall to complicated maths and not enough to real world observation. This allows castles in the air to be constructed and this is what our brave intellectual explorer is able to aid us in avoiding.

Well, yes. Except this concept of mathiness in economic models. It’s not a new complaint and was in fact put forward by Paul Romer back a year or three. That’s the Paul Romer who gained the Nobel for economics in 2018 alongside Bill Nordhaus.

Romer’s paper is here. And the thing that you’ll note is that he’s talking about macroeconomic models. Which are built on mountains of strange mathematics. Something we can look at again when we consider Romer’s little explanatory article about mathiness:

The point of the paper is that if we want economics to be a science, we have to recognize that it is not ok for macroeconomists

I focus on mathiness in growth models because growth is the field I know best, one that gave me a chance to observe closely the behavior I describe. (growth models are macroeconomic ones)
The field to which scrutiny might first extend is economic fluctuations. Some macroeconomists are already asking methodological questions about what constitutes good macroeconomic theory. One part of this analysis could be to ask whether mathiness also shows up in theories of aggregate fluctuations.
Given how deeply entrenched positions seem to have become in macroeconomics,

The criticism of excessive maths being tortured to produce the desired income is of macroeconomics, not microeconomics.

Richard Murphy’s insistence is the other way around. So, who should we believe, the recipient of the Prize in Memory of Alfred Nobel in Economic Sciences or the Retired Accountant from Wandsworth?

Toughie, that one. But the answer will aid us in how much attention we should give to the rest of his theories, no?

0 0 votes
Article Rating
Notify of

Newest Most Voted
Inline Feedbacks
View all comments
3 years ago

This is actually a very profound question because this can be said of many topics where a person is not an expert and must rely on expert opinion. The problem is that you can have Opinion A supported by a seemingly educated person, wearing a suit and tie and sounding perfectly reasonable. And then we can have opinion B also supported by a seemingly educated person, wearing a suit and tie and sounding perfectly reasonable. Who to believe? It can be difficult for a lay person in these situations to truly deduce which is the more credible opinion.

3 years ago

Does he think that Hayek, for example, was obsessed with mathematical models?

3 years ago

The use of maths is highly suspect. Human behaviour is not pre-ordained (or at least not a level we can model yet) in the way that the movements of the Moon and the earth and the rocket are. Models are thus only models, not calculations.

Would love your thoughts, please comment.x