from Peter Radford

I haven’t commented on the state of economics lately largely because there’s been no change. It remains a mess. Moreover it remains a mess few people seem keen to clean up. Pet theories abound. Old ones are trotted out anew. Academic bricks are tossed over walls into rival camps. But no one fixes much of anything. The public has a right to be confused.

Perhaps we should all just laugh. Economics is so far away from what its most ardent practitioners think it is that it has become a cartoon. Enjoyable, but not to be taken seriously.

And I say this as someone who has a passion for the subject. Imagine my despair at what its leading thinkers have wrought.

Economists nowadays love to talk about their models. They produce models to explain and elucidate. They devise more complex models to mimic the entire economy. They cobble together small models to illustrate a particular problem. Not to model is not to be an economist.

I call these models caricatures. That’s what they are. Caricatures.

Think of those old political cartoons. The subject of the cartoonist’s scorn was always a politician whose features were exaggerated to make a point. If the nose was large in real life, it became huge in the cartoon. If the ears were a little on the above average side, then they became elephantine. A squeaky voice was portrayed as a squeal. And so on. The point being that the viewer of the cartoon was assumed to be aware of the foible or feature being drawn out, and the exaggeration was a device to convey new information or to highlight something about the subject.

Models are the same thing.

They are gross simplifications with certain features of the real world suppressed or eliminated entirely in order to draw attention to others. If the model is supposed to throw light on one thing, then other stuff is thought of as extraneous and eliminated.

Just as a human face can be recognized either by its salient features, as in a cartoon, or by its entirety, as in a photograph, there is a world of difference between the information conveyed in either medium. The very act of creating a caricature reduces the amount of original information available to the viewer, but allows a single item to stand out. Models do the same thing. One thing stands out. One relationship comes into focus. One exchange or one artifact is rendered more clearly.

But no one thinks of a caricature as a portrait. No one muddles the two up. No one reasons from a caricature and imagines they know something concrete about the original face. Other, that is, than what is already known and is being highlighted.

You see the process of information reduction in order to specify a particular feature to exaggerate severs the cord with reality. It is as if a knife cuts through the complex and often difficult to render in order to leave only a flattened, simplified likeness. Which is not a complete likeness at all, but a vivid selection sufficient for illustration and the spotlight.

The reason a caricature works is that we already know about the nose, the ears, or the voice. There is nothing new being conveyed. Recognition is simplified so that another message can be attached to it and passed along more readily.

In contrast, the reason economists use models is to look for things that are not already known. They are looking for insights not easily revealed by the complex web of reality, but which may come into sharper focus when that complexity os removed.

The success or failure of the technique resides largely in the choice[s] about which aspect of reality to suppress. And therein lies the source of the mess. Economists have made some pretty damn awful choices. So much so that any insights gained are unlikely to have much, if any, relevance to the real world. The cartoon remains just that, a cartoon.

The shame of it is that some of the grandest accomplishments of modern economics fall into such a category. Rational expectations. General equilibrium. Efficient markets. Marginal productivity and costing. The list goes on. Whether these are features of the real world we are supposed to be understanding is highly questionable. That they are commonplace in economic models and are deployed to help explain that real world is beyond question.

That list is more interesting for what it reveals about economists, than for what it allows us to learn about the economy.

Apparently economists like caricatures because they cannot draw good portraits. Economics is mostly a cartoon. We need it to be more.