Modern economics — an intellectual game without practical relevance

RWER Blog points to  this interesting piece written by Prof Mark Blaug in 1997.

Modern economics is sick. 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. To pick up a copy of The American Economic Review or The Economic Journal these days is to wonder whether one has landed on a strange planet in which tedium is the deliberate objective of professional publication. Economics was once condemned as “the dismal science” but the dismal science of yesterday was a lot less dismal than the soporific scholasticism of today …

If there is such a thing as “original sin” in economic methodology, it is the worship of the idol of the mathematical rigour invented by Arrow and Debreu in 1954 and then canonized by Debreu in his Theory of Value five years later, probably the most arid and pointless book in the entire literature of economics.

The result of all this is that we now understand almost less of how actual markets work than did Adam Smith or even Léon Walras. We have forgotten that markets require market-makers, that middlemen have to hold inventories to allow markets to function, that markets need to be organized and that property rights need to be defined and enforced if markets are to get started at all. We have even forgotten that markets adjust as often in terms of quantities rather than prices, as in labour markets and customer commodity markets, as Alfred Marshall knew very well but Walras overlooked; so well have we forgotten that fact that a whole branch of economics sprang up in the 1960s and 70s to provide “microfoundations” for Keynesian macroeco- nomics, that is, some ad hoc explanation for the fact that a decline in aggregate demand causes unemployment at the same real wage and not falling real wages at the same level of employment …

Indeed, much of modern microeconomics might be fairly described as a kind of geography that consists entirely of images of cities but providing no maps of how to reach a city either from any other city or from the countryside.

This map analogy is a great way to sum up the state of economics. The higher you go in your economics education the more disconnected you become with the world outside. Infact, one has to make double the effort to figure both the worlds of advanced economics and the economics that matters..


2 Responses to “Modern economics — an intellectual game without practical relevance”

  1. Anil Says:

    Reblogged this on My Notes on Economics.

  2. Oleg Komlik Says:

    Several year after Blaug wrote “Ugly currents in modern economics”, he elaborated this article into a book chapter with the same title. One of his additions was this sentence: “…the dismal science of yesterday was a lot less dismal than the soporific scholasticism of today. To paraphrase the title of a popular British musical: “No Reality, Please. We’re Economists.”

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