My Alzheimic profession

Robert Waldman (who is unpleasantly aggressive and arrogant in his comments, but I digress) shows how Friedman’s contribution to the idea that the Phillips curve would change as expectations changed wasn’t much of a contribution at all. It was all in Samuelson and Solow – only better – in 1960. Attribution of the idea that expectations influenced the Phillips curve to Friedman was due to some fancy marketing by him – and I’d add, by the extreme ‘thinness’ of the discipline. Units of thought appear as formal papers which then stand in the profession’s collective memory as stick figure caricatures of their real content.

Here’s Waldman:

To be clear, I think that on the day he died, Friedman’s thought had not reached the level of scientific validity of Samuelson and Solow 1960.

This happens all the time. Paul Krugman recently posted an excellent write up he gave of his career and how he works.  But one thing that I think is distinctly non-excellent about it is that it rehashes Krugman’s complacency about his own profession:

The point of my trade models was not particularly startling once one thought about it: economies of scale could be an independent cause of international trade, even in the absence of comparative advantage. This was a new insight to me, but had (as I soon discovered) been pointed out many times before by critics of conventional trade theory. The models I worked out left some loose ends hanging; in particular, they typically had many equilibria. Even so, to make the models tractable I had to make obviously unrealistic assumptions. . . . I was, of course, only saying something that critics of conventional theory had been saying for decades. Yet my point was not part of the mainstream of international economics. Why? Because it had never been expressed in nice models. The new monopolistic competition models gave me a tool to open cleanly what had previously been regarded as a can of worms. More important, however, I suddenly realized the remarkable extent to which the methodology of economics creates blind spots. We just don’t see what we can’t formalize. And the biggest blind spot of all has involved increasing returns. So there, right at hand, was my mission: to look at things from a slightly different angle, and in so doing to reveal the obvious, things that had been right under our noses all the time.

It doesn’t occur to Krugman to say that a discipline that makes invisible important and obvious aspects of the complex reality it is seeking to investigate might do more harm than good and that it might be better to try to fix the problem at source – ie to have a more pluralistic discipline.

Another example of forgetting is Akerlof’s Market for Lemons. The market for lemons is an obvious idea. Indeed it’s so obvious, that as Akerlof himself mentioned in the article, it’s an extension of an idea that for whom Sir Thomas Gresham is famous even though the idea itself – that bad money drives out good – had been around a good while before Sir Thomas came up with it in the sixteenth century. Copernicus mentioned it as did Aristophanes. Anyway, it was taboo and, because economists didn’t do that kind of thing, Akerlof couldn’t get his paper published without quite a struggle – like Krugman and his simple and silly trade models.

And did Krugman’s trade models help get us far beyond re-introducing something that was important, obvious and ignored? Not according to him who described the upshot of strategic trade theory as disappointing. Funny about that. Of course it could never have been predicted that formalising complex phenomena by simplifying them with silly assumptions sufficiently to become tractable in simple models might have sufficiently degraded one’s purchase on reality to not be very useful.  Oh well, at least we can discuss the obvious again. Rather like where we were from Marshall to Hicks.