Economic theory and intuition-based policy

For a few week’s I’ve been carrying a pdf of a working paper by one of the elder statesmen of economics – Richard Lipsey – around on my hard drive. Entitled Twenty five methodological issues in memory of Mark Blaug its focus is pretty self-evident. Today I had the opportunity to read it. I’m glad I did.

blaugIf economics students encounter a methodology book then it is likely to be Mark Blaug’s The methodology of economics. That may be the only discussion of economic methodology they ever come across. Even though it rather overplays the possibility of falsifying theories, it’s a great book. In fact, its adherence to a somewhat outmoded Popperian philosophy makes it a better read. It’s generally quite negative about much of modern economics. Blaug was rather disillusioned. Economists seemed rather wedded to a set of core theoretical principles and beliefs. They seemed less committed to the robust empirical testing of the implications of those beliefs, and the rejection of those beliefs if they fail the test. Theology not science. The book is good knockabout stuff.

Blaug died in 2011, hence Lipsey’s title. Lipsey’s short paper is a wide ranging overview of some key methodological issues and puzzles across both micro and macro. It’s very much in the spirit of Blaug’s writing. The core question is how do ideas persist – and not only persist but continue to dominate – in the face of demonstrable theoretical inadequacy or incoherence, or robust evidence that contradicts them. [Read more…]