Anatole Kaletsky indicts the modern economist profession for the current crisis  in the Prospect:

Was Adam Smith an economist? Was Keynes, Ricardo or Schumpeter? By the standards of today’s academic economists, the answer is no. Smith, Ricardo and Keynes produced no mathematical models. Their work lacked the “analytical rigour” and precise deductive logic demanded by modern economics…. If any of these giants of economics applied for a university job today, they would be rejected. As for their written work, it would not have a chance of acceptance in the Economic Journal or American Economic Review….

….The truth is even worse than this rhetorical question suggests: not only have economists, as a profession, failed to guide the world out of the crisis, they were also primarily responsible for leading us into it.

via Features: ‘Goodbye, homo economicus’ by Anatole Kaletsky | Prospect Magazine April 2009 issue 157.

I have long shared held the views expressed by Kaletsky.  Perhaps that’s why I’m not in some research school and writing in the major Econ journals.  Alas, it appears that economists (the current reigning crop of “leading mainstream academic economists” are rather thin-skinned.  Kaletsky’s critique was generally not well received by the PTB in the profession.  Witness Mark Thoma and more Thoma and yet more Thoma and  Krugman. Methinks they doth protest too much.  They take great offense at the Kaletsky’s supposed attack on “math”, when in fact Kaletsky is attacking the methodology and thinking that limits itself only to math, that will not question assumptions, and then raises the math outcome to the status of “truth”.  Economics left the study of the real economy and real people behind in the era 1950-1980.  It fell into the grip of MMMM ( modern math model mania).

Some of my own thoughts and reactions to Thoma’s reaction to Kaletsky below the fold:

While I agree with the essential point Mark’s trying to make: namely that our data stinks and we need to invest in the data, both conceptual definitions and quality of gathering/reporting.

But I think he doth protest too much. Kaletsky has hit a nerve (Krugman is offended also). In particular “academic economists have taken a lot of grief for not predicting the crisis,”. Mark misses the essence of the criticism.

Kaletsky (in my reading) is not criticizing because of failure to forecast. IT’s criticism of the blind spots induced by MMMM (modern math model mania). Yes, as Krugman notes, Keynes used math. So did Smith. Heck, even Marx used or implied math. Keynes, Smith, Schumpeter, used math to explain the thinking of their conception of the economic dynamics. The math is secondary. Assumptions are necessary to apply the math. But with MMMM, economists reify the model. They make assumptions, write a model, then actually believe the model IS the reality. In effect, they beleive “the model says this doesn’t/cannot exist” ergo who do believe: your lyin’ eyes or the model. MMMM economists choose the model. So because RBC assumes that markets clear, it concludes that fiscal stimulus cannot work because there are no unused resources (unemployed workers at today’s wage). It has assumed away the real economic issue and then announced reality can’t be the way it is.

IMHO, the problem is not using math per se. Rather it is a methodological problem. Ever since Uncle Miltie proclaimed positive economics is the only acceptable economics, we got off track. Uncle told us that criticizing the “realism” of assumptions is not a valid criticism since all models are simplifications. But assumptions must have some bearing to reality. If we make assumptions where our entire results depend on the assumptions, then the assumption had better have some grounding in reality. A simplification of reality, maybe, but it must have some reality-ness to it. More than better data, we need to try actually testing our models. Rarely do folks actually do it. Most of the core fundamentals are based not on tried, tested, and falsifiable models, but on pure assumption, belief, and ideology.

The other aspect of MMMM that disturbs me is that it’s not just any math models that are acceptable. It must be based on a Newtonian-type physics math model. Pure homo economicus based on that fantasy of utility. Other models need not apply. It’s interesting that physics itself has moved on – quantum mechanics, relativity, and all that. But econ? no. We still insist the economy is this giant optimizing machine.

I shouldn’t all econ, though. There are some, exiles in woods, that we should invite back into the profession: the heterodox folks – the ecology economists, the social economists, the political economists, and even the radicals. But that’s not likely to happen. Let’s face it: the MMMM is really a nice barrier to entry to help enforce the oligopoly of existing schools.