PART I - ECONOMICS IN ACTION
Published online by Cambridge University Press: 05 June 2012
Summary
If we are to understand the state of modern economics, we need to tackle the problem of economic theory. For, more than any other social science, economics is dominated by modelling. Economic theory typically involves the working out of the implications of rational choice in a variety of contexts. This may be done using mathematics, or it may just involve logical analysis, expressed in everyday language. Similarly, empirical (or applied) work typically involves the construction of models that differ from theoretical ones in that they contain numbers that are derived from statistical data. Enthusiasts for modern economics and its critics are in complete agreement that modelling is central to the subject as it exists today. What they disagree on is whether these theories tell us much that is useful about the world.
Take the genre of ‘economics explains everything’ books, cited at the start of Chapter 1. Much of this literature is based on analysing data to find paradoxical results, such as links between abortion and crime or patterns in baby naming. There contain little formal theory, let alone mathematics, but these books demonstrate the power of economics by showing how empirical results can be explained by assuming that people behave rationally in the circumstances they face. The message is that simple ideas explain a lot of different things. On the other side, critics claim that the problem with economics is that viewing people as rational optimizers involves accepting an impoverished, one-dimensional account of human behaviour.
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- The Puzzle of Modern EconomicsScience or Ideology?, pp. 15 - 20Publisher: Cambridge University PressPrint publication year: 2010