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Wednesday, October 30, 2013

'Economics, Good and Bad'

Chris Dillow:

Economics, good and bad: Attacks on mainstream economics such as this by Aditya Chakrabortty leave me hopelessly conflicted. ...[explains why he's conflicted]...
The division that matters is not so much between heterodox and mainstream economics, but between good economics and bad. I'll give just two examples of what I mean.
First, good economics tests itself against the facts. What makes Mankiw's defence of the 1% so risible is that it ducks out of the empirical question of whether neoclassical explanations for rising inequality are actually empirically valid. Just because something could be consistent with a theory does not mean that it is.
Secondly, good economics asks: which model (or better, which mechanism or which theory) fits the problem at hand? For example, if your question is "should I invest in this high-charging actively managed fund?" you must at least take the efficient market hypothesis as your starting point. But if you're asking "are markets prone to bubbles?" you might not. As Noah says, the EMH is a great guide for investors, but not so much for policy-makers.
It's in this sense that I don't like pieces like Aditya's. Ordinary everyday economics - of the sort that's useful for real people - isn't about bigthink and meta-theorizing, but about careful consideration of the facts.

    Posted by on Wednesday, October 30, 2013 at 10:38 AM in Economics, Methodology | Permalink  Comments (14)


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