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The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.


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November 08, 2006


Fisking Dave Altig (Philip Ball Responds)

In an earlier post, I gave science writer Philip Ball a hard time about his Financial Times article giving economists (or at least mainstream economists) a hard time.  Dr. Ball has responded in the comment section of that post, but I feel he deserves equal time "above the fold" as it were.  Here, then, a lightly-edited version of his rejoinder, with context inserted.

On my claim that economists do not assume that market outcomes are efficient: 

The key criticism here – and in most other critiques of my article – is that economists seem to be reading “neoclassical economics” as “all of economics”. Interesting, that, and perhaps revealing, but come on guys, read the print. Once you do that, the remark about institutions collapses. So does the remark about market efficiency.

So let me say this clearly. Lots of economics goes beyond assumptions about perfectly rational agents, fixed preferences, perfectly efficient markets and so forth. That’s great. But lots doesn’t, and there are journals where you won’t get a look in if you challenge that dogma. My point is that it is time to ditch those notions altogether. Stop teaching them to undergraduates. Not only do they not work, but they are (mostly) demonstrably wrong in behavioural terms, and even if you accept them, the models derived from those assumptions are internally inconsistent. Won’t you at least admit that?

On my objection to asserting that neoclassical economics has "right-wing" political origins:

“It is tempting to infer that…” This is a rhetorical structure. It implies that “Yes, it’s tempting, but we should resist that simplistic idea.” I didn’t think this was so hard so understand, but sorry if I was wrong to assume that. In any event, clearly I should’t have mentioned the dread words ‘right-wing’, because you’vie really got hung up on that. I’m interested in why it provoked such a response.

On the "error" in neoclassical economics:

“This error” – is not that economics is highly mathematical, but that economics got stuck on ideas of equilibrium and a balancing of forces. Again, that’s what my article says quite clearly.

On the use of the word business cycle in economics:

“Business cycle” – words matter. Cyclist has been a persistent myth in economics, whence Kitchen cycles, Jugular cycles, Kuznets cycles, Kindred cycles, ad nausea. Ditch the word – it is not helping. In fact, if this really is ‘fine’ with you, then do call them ‘aggregate fluctuations’. ‘Cycle’ sounds like something well behaved and well understood. ‘Fluctuations’ sounds a bit more disconcerting, but why not face up to that?

“RBC theory” – yes, that’s what I’m referring to. And as I clearly said, what I object to is the way it places the cause of fluctuations outside the system, in the form of random, external shocks. Why not entertain the idea that the fluctuations may be intrinsic to the dynamics of this complex system?

On my claim that it is common for people who would call themselves neoclassical economists to step outside the assumption that agents are perfectly rational:

“Conversations like this one” – that ‘conversation’ begins “The rational expectations hypothesis swept through macroeconomics during the 1970s and permanently altered the landscape. It remains the prevailing paradigm in macroeconomics, and rational expectations is routinely used as the standard solution concept in both theoretical and applied macroeconomic modeling.” Look, I’m glad that hypothesis is now being debated, but are you seriously saying that this disproves my point?

On the very last word of my earlier post:

“Whatever” – i.e. shut up. Well, OK, it’s your blog. But I thought these comments were meant to be pointing out my errors.

[OK, I'm embarrassed by that one.  Dr. Ball rightly called me out on what really was just a snotty nonconstructive comment.  I apologize.]

Ball sums up:

I’vie no objection to economics calling itself a science. I believe that is just what it should be. And it’s a really, really hard science, which other scientists don’t sufficiently appreciate. What puzzles me is why it is finding it so hard to discard wrong ideas. All sciences struggle with that, but this one seems to have more problems than most. At least one economist agrees: see the FT on 6 November, http://www.ft.com/cms/s/d0cd9ee2-6d3b-11db-9a4d-0000779e2340.html.

But look, I’m sure all of this sounds more aggressive than I want it to, because I get irritated when I think my words haven’t been read properly. I’m not interested, however, in saying that I’m right and you’re wrong. There’s a lot I can learn from this exchange. And I recognize that I could have done more to indicate that there are many branches of economics, by no means all of which suffer from the defects I mentioned. If I’ve provoked discussion, the article has served its purpose. Let’s try to keep it as discussion, and not turn it into a battle.

Beautifully put.

The only thing I omitted from these remarks were comments specifically directed to other comments.  If you are interested in those -- as well as my own response to Dr. Ball's response -- I refer you back to the comment section of the original post.

November 8, 2006 in This, That, and the Other | Permalink

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Comments

No. The "whatever" should be read as "you do better".

It's not about "ideas". It's about hypotheses. Hypotheses fit facts better or worse... than competing hypotheses.

As long as "the haters" don't come up with alternative quantitative models, empirically relevant... the entire discussion it's a waste of time, in my humble opinion.

Posted by: Gabriel M. | November 08, 2006 at 11:49 AM

And by the way, the FT link is incorrect - it is to an article on Slovenia and the EU. The one by Paul Ormerod is behind a paywall.

Posted by: radek | November 08, 2006 at 04:22 PM

cf. http://www.rgemonitor.com/blog/economonitor/156325 - "Why macroeconomics is truly substance-free"

Posted by: Bill Cristal | November 11, 2006 at 08:33 AM

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