Logic Freaks

Modern economics is sick.

ISTVAN BANYAI

Economics has increasingly become an intellectual game played for its own sake and not for its practical consequences for understanding the economic world. Economists have converted the subject into a sort of social mathematics in which analytical rigour is everything and practical relevance is nothing.

At least three Nobel laureates have expressed their concerns. At a very early stage Wassily Leontief in 1982 objected that models had become more important than data: “Page after page of professional economic journals are filled with mathematical formulas … Year after year, economic theorists continue to produce scores of mathematical models and to explore in great detail their formal properties; and the econometricians fit algebraic functions of all possible shapes to essentially the same sets of data.”

In 1997, Ronald Coase complained: “Existing economics is a theoretical system which floats in the air and which bears little relation to what happens in the real world.” Near the end of his life, Milton Friedman observed: “Economics has become increasingly an arcane branch of mathematics rather than dealing with real economic problems.”

What happened after these prestigious complaints? David Colander lamented in 2009 that none of these prominent warnings “had any effect on US graduate economic education.” As Mark Blaug wrote pessimistically in 1998: “We have created a monster that is very difficult to stop.”

The problem is not necessarily mathematics per se, but the obsession with technique over substance. Arguably there is a proper place for some limited use of useful heuristics or data-rich models within economics. But what should determine their adoption is not their technical aesthetics, but their usefulness for helping to explain the real world.

Geoffrey M. Hodgson is Editor-in-Chief of the Journal of Institutional Economics.