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Paul Krugman—Mistaking the Map for the Territory

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By Lars Syll

lars syll

 

 

 

 

 

 

 

 

 

Paul Krugman has — together with Robin Wells — written an economics textbook that is used all over the world. As all the rest of mainstream economics textbooks, it stresses from the first pages the importance of supplying the student with a systematic way of thinking through economic problems with the help of simple models.

Modeling is all about simplification …

A model is a simplified representation of reality that is used to better understand real-life situations …

The importance of models is that they allow economists to focus on the effects of only one change at a time …

For many purposes, the most effective form of economic modeling is the construction of ‘thought experiments’: simplified, hypothetical versions of real-life situations …

And these kind of rather vacuous ‘simplicity’ and ‘understanding’ statements get repeated — almost ad nauseam — over and over again in the book.

For someone genuinely interested in economic methodology and science theory it is definitely difficult to swallow Krugman’s methodological stance, and especially his non-problematized acceptance of the need for simple models.

To Krugman modeling is a logical way to analytically isolate different variables/causes/mechanisms operating in an economic system. Simplifying a complex world makes it possible for him to ‘tell a story’ about the economy.

Is not the use of abstractions a legitimate tool of economics? No doubt — it is only that all abstractions are not equally correct. An abstraction consists of isolating a part of reality, not in making it disappear.

Emile Durkheim

What is missing in Krugman’s model picture is an explanation of how and in what way his simplifications increase our understanding — and of what. If a model is good or bad is mostly not a question of simplicity, but rather if the assumptions on which it builds are valid and sound, or just something we choose, to make the model (mathematically) tractable.

Assumptions may make the model rigorous and consistent from a logical point of view, but that is of little avail if the consistency is bought at the price of not giving a truthful representation of the real economic system.

The model may not only be simple but oversimplified, making it quite unuseful for explanations and predictions.

The theories economists typically put forth about how the whole economy works are too simplistic.

George Akerlof & Robert Shiller

Throughout his discussion of models, Krugman assumes that they ‘allow economists to focus on the effects of only one change at a time.’ This assumption is of paramount importance and really ought to be much more argued for — on both epistemological and ontological grounds — if at all being used.

Limiting model assumptions in economic science always have to be closely examined since if we are going to be able to show that the mechanisms or causes that we isolate and handle in our models are stable in the sense that they do not change when we ‘export’ them to our ‘target systems,’ we have to be able to show that they do not only hold under ceteris paribus conditions and a fortiori only are of limited value to our understanding, explanations or predictions of real economic systems.

The rather one-sided emphasis on usefulness and its concomitant instrumentalist justification cannot hide that neither Krugman, nor the legions of other mainstream economics textbooks authors,  give supportive evidence for their considering it fruitful to believe in the possibility of analyzing complex and interrelated economic system ‘one part at a time.’ For although this atomistic hypothesis may have been useful in the natural sciences, it usually breaks down completely when applied to the social sciences. Dubious simplifying approximations do not take us one single iota closer to understanding or explaining open social and economic systems.

The kind of relations that Krugman and other mainstream economists establish with their ‘thought experimental’ modeling strategy are only relations about entities in models that presuppose causal mechanisms being atomistic and additive. When causal mechanisms operate in real world social target systems they only do it in ever-changing and unstable combinations where the whole is more than a mechanical sum of parts. If economic regularities obtain they do it (as a rule) only because we engineered them for that purpose. Outside man-made ‘nomological machines’ they are rare, or even non-existant. Unfortunately that also makes most of the mainstream modeling achievements rather useless.

All empirical sciences use simplifying or ‘unrealistic’ assumptions in their modeling activities. That is not the issue – as long as the assumptions made are not unrealistic in the wrong way or for the wrong reasons.

Theories are difficult to directly confront with reality. Economists therefore build models of their theories. Those models are representations that are directly examined and manipulated to indirectly say something about the target systems. But models do not only face theory. They also have to look to the world. Being able to model a ‘credible world’ — Krugman’s ‘thought experiment’– a world that somehow could be considered real or similar to the real world, is not the same as investigating the real world. Even though all theories are false, since they simplify, they may still possibly serve our pursuit of truth. But then they cannot be unrealistic or false in any way. The falsehood or unrealisticness has to be qualified.

Some of the standard assumptions made in mainstream economic theory – on rationality, information handling and types of uncertainty – are not possible to make more realistic by ‘de-idealization’ or ‘successive approximations’ without altering the theory and its models fundamentally. And still there is not a single mentioning of this limitation in Krugman’s textbook!

From a methodological perspective, Krugman’s economics textbook — as are those of Mankiw et consortes — is a rather unimpressive attempt at legitimizing using fictitious idealizations for reasons more to do with model tractability than with a genuine interest of understanding and explaining features of real economies.

Krugman’s textbook and its simplicity preaching shows that mainstream economics has become increasingly irrelevant to the understanding of the real world. The main reason for this irrelevance is the failure of mainstream economists to match their deductive-axiomatic methods with their subject.

It is — sad to say — a fact that within mainstream economics internal validity is everything and external validity nothing. Why anyone should be interested in that kind of theories and models — as long as mainstream economists do not come up with any export licenses for their theories and models to the real world in which we live — is beyond my imagination. Sure, the simplicity that axiomatics and analytical arguments bring to economics is attractive to most economists, but simplicity obviously has its perils. Although simplicity is great when solving models, it’s quite another thing to assume that reality conforms to that tractability prerequisite.

Krugman’s and other mainstream economists’ textbooks are sad readings. Both theoretically and methodologically they are exponents of an ideology that seems to say that as long as theories and hypotheses are possible to transform into simple mathematical models, everything is just fine. As yours truly has tried to argue, there is actually no reason — other than pure hope — for believing this. The lack of methodological reflection in these books not only makes things wrong, but even worse, makes economics absolutely irrelevant when it comes to explaining and understanding real economies.

From: pp.2-3 of World Economics Association Newsletter 6(3), June 2016
http://www.worldeconomicsassociation.org/files/Issue6-3.pdf

Download WEA newsletter Volume 6, Issue No. 3, June 2016 ›

8 responses

  • Tom Brzezina says:

    Krugman’s “science” involves presenting evidence that seems to prove his ideology, and stating it as fact. His table-pounding books and articles are tiresome at best. Downright angerous at worst. He uses his status as a bully pulpit to express views that are often unsubstantiated and misleading. It sounds like his textbook is more of the same.

    • greg gerritt says:

      Responding to Tom B, I think all economists suffer from this delusion since none of them ever account for ecological collapse and deforestation and how that affects the economy. Plus they all think growth is the natural state and cannot even imagine a shrinking economy as a useful concept. That they say negative growth tells you abvout the biases.

  • Gregory Latiak says:

    It is a classic error to confuse the map with the territory. Models are useful abstractions to the extent that the relationships they show can be extended back into the real world to demonstrate their validity. After all, any abstraction can be asserted to be valid — it is only by checking it against the much messier real world that the relationships they abstract are validated. In some places it is referred to as a sanity check. Without a reality check it becomes religion, however popular.

  • Gerry Toner says:

    Greg Gerritt is spot on and it is not simply in this case that Paul Krugman is deluded. WEA is a refreshing venture and community. However it is not immune to ideological traps. We are in a moment when politics and the infrastructure of politics which is primarily policy based on theory are in a generalised crisis. This in part is due to reaching the limits of cartesian scientism. Mr Krugman has been popular and a leading light for liberal minded change agendas. This does not make him right or wrong. Like politics and the politicians he is done when the people speak to a new agenda. In the end the people decide by their actions as ‘economic agents’ that a model or theory offers value in explaining things. Knowledge in the Krugman approach is still theory driven. Real experience does not feature in models of economists, the answers lie also in social constructs not simply the models.

  • Stephen I. Ternyik says:

    Dear Prof. Syll; it was a pleasure (!) for me to read your brilliant******* article about territorial economics, privatizing natural resources and textbook ‘didactics’. It will not be easy to break free from the Babylonian tradition of accounting (and the pedagogical indoctrinations), but I still hope that I will witness this ‘book-keeping’ innovation of humankind in my lifetime. Congrats, for making clear that the (economic) map is not the territory. Because: the economic gain (of living chances) is derived from the territorial resources and the map serves as the legal code (of prolonged injustice).

  • Edward Downe says:

    Thorstein Veblen asked long ago “Why isn’t economics an evolutionary science?” Robert Frank in The Darwin Economy says he feels confident that 100 years from now Darwin, not Adam Smith (who only mentioned the ‘invisible hand’ three times in the Wealth of Nations and made clear in The Theory of Moral Sentiments that it could never be a foundation for social behavior) will be considered the father of economics. It should long ago have been clear to economists that the methodologies used in Newtonian physics could never have that kind of success in a social science. Alex Rosenberg has called neoclassical economics “applied mathematics” mainly because the empirical evidence rules it out as a predictive science. I believe historians will one day marvel at why it took presumably smart people so long to recognize there was a serious problem. Hopefully, your article will push the case farther.

  • Edward Downe says:

    I hope this article will help us push the case for new economic textbooks that base the foundations of economics in evolutionary biology.

  • Paul Grignon says:

    Just model money and banking correctly according to the rules, and the reason for our grow-or-collapse economy will emerge. http://www.moneyasdebt.net

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