Dani Rodrik in Project Syndicate:
Ever since the late nineteenth century, when economics, increasingly embracing mathematics and statistics, developed scientific pretensions, its practitioners have been accused of a variety of sins. The charges – including hubris, neglect of social goals beyond incomes, excessive attention to formal techniques, and failure to predict major economic developments such as financial crises – have usually come from outsiders, or from a heterodox fringe. But lately it seems that even the field’s leaders are unhappy.
Paul Krugman, a Nobel laureate who also writes a newspaper column, has made a habit of slamming the latest generation of models in macroeconomics for neglecting old-fashioned Keynesian truths. Paul Romer, one of the originators of new growth theory, has accused some leading names, including the Nobel laureate Robert Lucas, of what he calls “mathiness” – using math to obfuscate rather than clarify.
Richard Thaler, a distinguished behavioral economist at the University of Chicago, has taken the profession to task for ignoring real-world behavior in favor of models that assume people are rational optimizers. And finance professor Luigi Zingales, also at the University of Chicago, has charged that his fellow finance specialists have led society astray by overstating the benefits produced by the financial industry.
This kind of critical examination by the discipline’s big names is healthy and welcome – especially in a field that has often lacked much self-reflection. I, too, have taken aim at the discipline’s sacred cows – free markets and free trade – often enough.
But there is a disconcerting undertone to this new round of criticism that needs to be made explicit – and rejected. Economics is not the kind of science in which there could ever be one true model that works best in all contexts. The point is not “to reach a consensus about which model is right,” as Romer puts it, but to figure out which model applies best in a given setting.