Wednesday, April 22, 2009

Economists' Grand Project

John Kay has an interesting column about the grand project of supplying microfoundations for macroeconomics. I think the last part is worth quoting:
Max Planck, the physicist, said he had eschewed economics because it was too difficult. Planck, Keynes observed, could have mastered the corpus of mathematical economics in a few days – it might now have taken him a few weeks. Keynes went on to explain that economic understanding required an amalgam of logic and intuition and a wide knowledge of facts, most of which are not precise: “a requirement overwhelmingly difficult for those whose gift mainly consists in the power to imagine and pursue to their furthest points the implications and prior conditions of comparatively simple facts which are known with a high degree of precision”. On this, as on much else, Keynes was right.
His point is that the effort to reduce every argument to a single model causes us to ignore behavior that is crucial to the stuff we want to explain.

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