Lars Pålsson Syll on “orthodox, mainstream, neoclassical economics”:
Economic theory today consists mainly in investigating economic models.
Neoclassical economics has since long given up on the real world and contents itself with proving things about thought up worlds. Empirical evidence only plays a minor role in economic theory (cf. Hausman ), where models largely functions as a substitute for empirical evidence. But “facts kick”, as Gunnar Myrdal used to say. Hopefully humbled by the manifest failure of its theoretical pretences, the one-sided, almost religious, insistence on mathematical deductivist modeling as the only scientific activity worthy of pursuing in economics will give way to methodological pluralism based on ontological considerations rather than formalistic tractability.
If not, we will have to keep on wondering – with Robert Solow and other thoughtful persons – what planet the economic theoretician is on.” [page 54]
I agree with the general thrust of this essay, which resonates with some of my own thoughts on the Glass Bead Game of Economics, for example, here and here.
Mind you, I don’t agree with everything that Syll says in this essay. For example, he argues that good predictive capabilities require models to bear resemblance to their target domains. But we know many counter-examples to this claim, from Newton’s model of planetary motion to Friedman’s billiard players. Prediction and explanation are two orthogonal dimensions of a model, which may or may not be related in any particular case.
His essay also overlooks the fact the the so-called “real world” which is the target domain of economic models contains, at least in the case of macro-economics, mostly humanly-constructed artefacts, such as the “variables” known as inflation and unemployment rates. Having sat in working parties defining and redefining such artefacts, I am always surprised that any economist could possibly imagine they are modeling an independent reality.
Lars Pålsson Syll : What is (wrong with) economic theory? Real-world Economics Review, 55: 23-57.