Friday, April 27, 2012

Has Paul Krugman become a member of the literati?

In 1996, Paul Krugman wrote an article for Slate called Economic Culture Wars, where he discussed the literary approach to economics in a disparaging manner.  To quote:

Academic economics, the stuff that is in the textbooks, is largely based on mathematical reasoning. I hope you think that I am an acceptable writer, but when it comes to economics I speak English as a second language: I think in equations and diagrams, then translate. The opponents of mainstream economics dislike people like me not so much for our conclusions as for our style: They want economics to be what it once was, a field that was comfortable for the basically literary intellectual.

Professor Krugman called out a few alleged practitioners of this dark art, namely Robert Kuttner and James K. Galbraith.  To me, it seemed like a bit of an assault on institutional economics (although Krugman indicated he was criticizing literary economics), which I follow a little bit, since my favorite (dead) economist is Gunnar Myrdal (who also did fine work in laying the foundations of the Swedish School, which arguably developed Keynesian economics before John Maynard Keynes).  So I'm probably suffering from Stockholm Syndrome.  Frankly, I think Krugman was unnecessarily harsh and, in some ways, criticized some techniques which he may have inadvertently used later on, particularly in his book Conscience of a Liberal.

He closed the article with the comment, "The literati cannot be satisfied unless they get economics back from the nerds.  But they can't have it, because we nerds have the better claim."  More recently (in 2009), Professor Krugman wrote an article for The New York Times Magazine, entitled How Did Economists Get It So Wrong?, discussing the financial crisis which resulted in the collapse of Lehman Brothers, the shame of many financial institutions, a foreclosures epidemic, the current depression, a Democratic super-majority in the Senate and the election of President Barack Obama in an electoral landslide (okay those latter two are not proven consequences).  He specifically criticized the economics professions for its failures in predicting the crisis and pointed to inadequate quantitative economic models (particularly Real Business Cycle and even New Keynesian).  To me, I read it not so much as an indictment of mathematical economics, but as a restatement of the obvious, that the models used in economics are not necessarily true and do not necessarily capture all important elements that a good, workable model should embrace.

Unfortunately, these articles have been portrayed by Stephen Williamson in his blog post The Paul Krugman We Used to Love (on February 11) as strongly contradictory.  He quotes Paul Krugman as saying in the 2009 article that, "As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth."  Sure, there is some criticism of the models used in macroeconomics, but Krugman was not saying that economists should abandon quantitative models for literary models.  Professor Williamson makes it seem like Professor Krugman has left mathematical models behind, but if you follow Krugman, there is usually a mathematical model lying behind his economic assertions, sometimes New Keynesian, sometimes the good old IS/LM.  When there isn't, particularly in political posts, I find that there is an institutional approach, which perhaps does bring him into a war with his 1996 incarnation.  He usually points to evidence (including apparent statistical relationships) supporting his "institutional" interpretation, but any institutional approach is bound to meet criticism, since it is not necessarily immediately quantifiable.

What should we make of the contrasts between mathematical models and literary models, including institutional economics?  Quite often I think there are institutional assumptions lying behind mathematical models, some of which may be quantifiable, but others, like having a functioning system for the assignment of and adjudication of property claims, might not be immediately quantifiable.  What might make some economists most uncomfortable is being confronted by their own institutional assumptions or institutional assumptions which they may not believe but might immediately appear to fit the facts.  As for literary models, I think it's probably best not to rely upon instincts and intuition alone (which sometimes occurs), but to look for quantitative explanations, where possible, and to exercise caution when and where one applies a basically literary explanation for those facts that are unexplained by data.  And (for economists/statisticians only): it might still be possible to take a literary explanation and use a dummy variable for known changes in institutions.

1 comment:

  1. Nice post. I'd add that by now Stephen Williamson has no scientific credibility left. He keeps predicting inflation, which doesn't happen, which doesn't stop from him from repeating the cycle.

    Krugman has pointed out that he has a model, which he explains. People like Williamson don't.