Some Issues Re-visited

Hmmm.

It seems that some people misunderstood my comments regarding neoclassical economics.

Allow me to reiterate and, perhaps, clarify.

I want to say that I regard neoclassical economics as a triumph. A wonderful achievement. Brilliant.

Please read the fine print: that brilliance has nothing to do with relevance, reality, or any other such yardstick.

All I am saying is that within its own confines, with regard to its own rules, and with respect to the limits placed upon it by its multitude of excellent practitioners, neoclassical economics has been an extraordinary success.

Further, and more to the point, I am saying that the number of instances of economies we find within the space of all possible economies described by neoclassical economics is tiny. So tiny we are unlikely ever to experience one.

So tiny that neoclassical economics, triumph or not, can be regarded as insignificant as having valid application to the vast majority of instances within that space.

It is thus a triumph, but a useless triumph.

At its very best – and this is an enormous stretch – it acts a very rough and dull caricature of the kind of economy we actually experience. Like all caricatures it has a vague resemblance to what we find around us, but on closer inspection it totally lacks the necessary detail for us to use as a portrayal of reality. It is useful, therefore, as a tentative first step, but we must discard it immediately if we want to delve far into any economy we are likely to encounter.

There may be economies, somewhere, that resemble those of neoclassical economics. People in those economies may actually be the oddballs that neoclassical analysts have theorized about. The firms may act along neoclassical lines. All the bizarre and twisted assumptions that the neoclassical system requires to possess the internal coherence that it demonstrates may actually exist in that far off place.

That they don’t here on planet earth is my point.

That actual economies require a different economics, a better understanding of human behavior, and a less weird description of business, does not detract from the intellectual achievement of the people who built the neoclassical system. It simply means that their effort is irrelevant. It means we all need to stop picking holes in something that, by its own measures, is a great success, and that we ought, instead, build something else. Something that stands up to a more rigorous set of standards.

Something that, in other words, requires rigor not to mask irrelevance and insufficiency, but, rather, to reflect the instances of economic activity we are likely to encounter. Rigor as elucidation not rigor as obfuscation ought guide us.

It is time for us to stop taking the easy route of simply picking at the strange world posited by the neoclassical thinkers, and to start replacing it.

And, as I tried to say before, I think that means ditching simplicity and replacing it with an embrace of complexity.

We ought leave those infinitely small instances of supremely simple economies that must lurk in the distant corners of the space of all economies somewhere to the neoclassical folk. Well done them! Our job is greater and more difficult. It is also more important and relevant.

We need to build theories that match the complexity of reality. Where we understand reality as being the majority of instances of economies we are likely to encounter in real life.

Does that clear things up?