Noah Smith’s critique of heterodox economics nonsense on stilts

Lars Syll

“ One problem in applying skepticism and critical investigation equally is that heterodox and mainstream theories use extremely different methodologies. In general, mainstream macro uses math, while heterodox macro uses literary text with no math … meaning that if we judge each theory using its own methodology, mainstream macro will have to pass rigorous quantitative evaluations, while heterodox ideas will “succeed” simply by humans vaguely and intuitively pattern-matching the conditions of the macroeconomy with the blocks of text they read.

“It makes little sense for mainstream theories to have to forecast inflation and employment and growth to the nth decimal place in order to be considered useful, while heterodox theories are deemed a success simply because commentators waved their hands at the outside world and said ‘Sounds legit!’. “ – Noah Smith

 

It is certainly true that most heterodox economists don’t use mathematical models of the type used by mainstream macroeconomics. And for good reasons!

Noah Smith like many other mainstream economists obviously has the unfounded and ridiculous idea that because heterodox people like me and MMTers often criticize the application of mathematics in mainstream economics, we are critical of math per se.

I don’t know how many times I have been asked to answer this straw-man objection to heterodox economics – but here we go again:

No, there is nothing wrong with mathematics per se.

No, there is nothing wrong with applying mathematics to economics.

Mathematics is simply one valuable tool among other valuable tools for understanding and explaining things in economics.

What is, however, totally wrong, are the utterly simplistic beliefs that

• “math is the only valid tool”
• “math is always and everywhere selfevidently applicable”
• “math is all that really counts
• “if it’s not in math, it’s not really economics”
• “almost everything can be adequately understood and analysed with math”

So please let’s have no more of this feeble-minded pseudo-debate where heterodox economics is described as simply anti-math!

Limiting model assumptions in economic science always have to be closely examined since if we are going to be able to show that the mechanisms or causes that we isolate and handle in our models are stable in the sense that they do not change when we ‘export’ them to our ‘target systems,’ we have to be able to show that they do not only hold under ceteris paribus conditions and a fortiori only are of limited value to our understanding, explanations or predictions of real economic systems.

Real-world social systems are not governed by stable causal mechanisms or capacities. The kinds of ‘laws’ and relations that mainstream economics has ‘established’ are laws and relations about entities in models that presuppose causal mechanisms being atomistic and additive. When causal mechanisms operate in real-world social target systems they only do it in ever-changing and unstable combinations where the whole is more than a mechanical sum of parts. If economic regularities obtain they do it (as a rule) only because we engineered them for that purpose. Outside man-made ‘nomological machines’ they are rare, or even non-existent.

Since the standard macroeconomic mathematical models today build on assumptions of representative actors, rational expectations, market clearing and equilibrium, and we know that real people and markets cannot be expected to obey these assumptions, the warrants for supposing that conclusions or hypotheses of causally relevant mechanisms or regularities can be bridged, are obviously non-justifiable. Incompatibility between actual behaviour and the behaviour in mainstream macroeconomic models is not a symptom of ‘irrationality.’ It rather shows the futility of trying to represent real-world target systems with models -mathematical or not -flagrantly at odds with reality.

A gadget is just a gadget – and no matter how brilliantly silly mainstream macroeconomic models you come up with, they do not help us work with the fundamental issues of modern economies.

The mainstream models that Noah Smith praise because they are so ‘precise’ and ‘rigorous’ are also totally useless. Mathematics and logic cannot establish the truth value of observables.

Source: Lars Syll blog, 16 June 2023 https://larspsyll.wordpress.com/2023/06/16/noah-smiths-critique-of-heterodoxeconomics-nothing-but-nonsense-on-stilts/