Academic journal article The Quarterly Journal of Austrian Economics

How Economics Professors Can Stop Failing Us

Academic journal article The Quarterly Journal of Austrian Economics

How Economics Professors Can Stop Failing Us

Article excerpt




Steven Payson, the author of this provocatively titled book, is a former career federal government economist who has the temerity to argue that economics could be a useful science if mainstream academic economist theoreticians would simply adopt and employ the scientific method in a serious effort to provide an understanding of the world in which we live. Instead, he convincingly argues, the culture of academic economists encourages and rewards a mathematical modeling onanism that is not only not "seminal," but is instead practically barren of any contributions to that understanding. Payson argues that the main purpose of such model-building exercises is to achieve publication in what are believed to be the top economics journals and, consequently, to garner citations in the published work of other academic economists.

Because the book is almost totally critical and contains suggestions for improvement only in the concluding chapter, I think a more appropriate title for it might be "Why Mainstream Economics Professors Are Not Contributing to Useful Knowledge, and a Few Suggestions for Improvement." There is much anger and outrage expressed by the author in the course of his argument, and yet the book is not just a polemic. If Payson's critique is on the mark, the question of what to do is certainly an important one. Economic policy makers face a host of real world problems and need guidance in the face of them. What they get instead in some important instances is uncomprehending surprise followed by excuses and panic--a prime example being the mainstream economics profession's response to the financial meltdown now termed "The Great Recession." The result of that Federal Reserve-fueled debacle was the most simple-minded Keynesian money dump in decades, and with no end in sight at this writing.

The cover of the book features a chessboard showing a simple "fool's mate." This seems appropriate as it is Payson's main contention that mainstream model-building founders quickly when it is realized that most of this activity consists of making a few simple assumptions and then engaging in a rigorous mathematical exercise to "rediscover" them. Other equally defensible assumptions would produce different implications. Little effort is devoted to the rigorous derivation and defense of assumptions, or to assessing the reliability of the data on which they may be based. (1) Milton Friedman argued that it was predictability of a model that mattered, not realism in assumptions which need only be "sufficiently good approximations for the purpose at hand." (p. 64) Too many economists took this to mean that only predictability mattered. Such an approach stands in stark contrast to that of the natural science practice of using the scientific method to achieve an understanding of the objective physical world that contributes to useful knowledge--that is, an "understanding of how the real world works." (p. 53) Payson's purpose is to counter the academic economist mainstream by pointing out that its mathematical clothing does not cover its explanatory vacuity.

By the natural science approach, Payson means the application of methods intended to reveal "the causality behind known and observable physical phenomena." (p. 120) Natural scientists do use mathematical models to develop their understanding of causal relations; however, the mathematics is simply a tool in this quest, not a substitute for results. In natural science culture, methodological issues are key in research designed to achieve an understanding of actual phenomena. In academic economic culture, methodology is a specialized subfield and economics students seldom address the question of the use of scientific method in research. (p. 188)

Instead, graduate students in mainstream economics programs study complicated mathematical models constructed on the basis of a few restrictive assumptions, and learn to model-build themselves with a view to future publication in economics journals. …

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