Justin Fox writes
That in itself is an interesting switch, and I wish Krugman had more directly confronted his transformation from guy who extolled “the scientific-mathematical outlook that is arguably the true glory of our civilization” to guy who writes that “the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.”
Since I absolutely agree with both of those statements right now, I detect no transformation. Fox asserts that if Krugman thinks that great things have been accomplished using the mathematical scientific approach then he must think that great things have been accomplished in economics by economists using the mathematical scientific approach.
His assertion that there is a transformation makes no sense if one considers the possibility that non economists, say physicists for example, might have accomplished great things using the mathematical scientific approach.
I’d say that economists have not accomplished much using the mathematical scientific approach, because economists almost never use an approach which is both mathematical and scientific.
The defining characteristic of science is that it is empirical and that hypotheses which are rejected by the data are abandoned (OK so the defining characteristic is that there are theories which bow to facts, just collecting facts is something else).
This is absolutely not true of mathematical economic theory. Rejected hypotheses are still maintained when we look at other subjects. Policy advice is guided by the assumption that rejected hypotheses are approximately true. The fact that a rejected hypothesis may still be a useful approximation is regularly interpreted as implying that famous hypotheses introduced by famous economists must be a useful approximation to the truth. Given that method of reasoning about the world, evidence is irrelevant (I give examples below).
In contrast there are economists who have committed science (examples, David Card, Larry Katz, John Bound, John Van Reenen, Claudia Goldin, Bruce Meyer, Alan Krueger, Christina Romer, Joshua Angrist and Richard Freeman). However, they all use quite little mathematics (in their science anyway). They do use theory — that is they attempt to determine causation from correlation by making identifying assumptions (that is assuming something is exogenous and is an uncaused cause). However the theory is theory which is immediately comprehensible to the man on the street and immediately convincing. For example, Angrist assumed that a special relationship between day of birth and wages for US men who turned 18 during the Vietnam war which is correlated with their draft number (dates were picked out of a big jar at random by two generals in the draft lottery) probably shows the effect of being subject to the draft. That is an assumption, theory brought to the data (such assumptions are always needed). It is one that normal people will immediately agree is reasonable (if they can imagine that it could conceivably be false). (the reader will note that Robert Waldmann is not on Robert Waldmann’s list).
There is mathematical economics and there is scientific economics. The overlap is minimal.
Fox is writing about the debate between Krugman and Cochrane. He argues that Cochrane is nothing like a scientist. He seems not to have thought about that when deciding that if Krugman thought that there is wonderful mathematical science then he must have thought that there was wonderful mathematical scientific economics.
Fox assumes that Krugman was like a cargo cultist who assumes that since physicists have achieved great things applying mathematical tools then it must be that economists who do something like what physicists do will achieve great things. This sort of idiocy is widespread, but Fox presents no evidence that Krugman ever shared it. He has always argued for theoretical work which presents models as examples of what might be going on — that is as a way to clarify thought and not as something to be taken seriously (in the sense that Sargent uses that word). He has long complained that the only science that economists know exists is physics (by the way the ignorance of economists about biology is astounding — they seem to have no idea that so much was accomplished with so little math).
Now Fox might have a case that Krugman has transformed. I too have the sense that his views have changed. However he doesn’t make this case. I conclude that his comment on how Krugman has transformed is Ballance.
Well that was a long tirade about an aside.
Examples of assuming a famous hypothesis *is* (not may be is) approximately true even if it is rejected by the data.
1) Mankiw on Modigliani & Miller in a discussion of Baker, DeLong and Krugman at Brookings he said that dividends don’t matter to first order because dividends didn’t matter in the Modigliani-Miller model which was the first neoclassical model to address the question.
2) Lucas said we know that there is Ricardian equivalence (the time he asserted that the balanced budget multiplier is zero because without a deficit “there is nothing for the multiplier to multiply).
3) Solow to Katz that Harvard didn’t have to raise salaries of junior faculty as it wasn’t having trouble filling the positions. Solow is one of the rediscoverers of efficiency wage models in which he asserts that this reasoning is invalid.
4) Krugman argued that the policy implications of old growth theory with perfect competition are correct 20 years ago when his academic work consisted basically of models which fit that data better in which the policy implications are different.
5) Barro estimated a fiscal multiplier of 0.8 and concluded it would be best to “start with” models in which it is zero. Then he contributed to the policy debate assuming it was zero.