Posted by: yannaungoak | July 19, 2009

My Econ professor featured in the Economist

The Economist cover story what went wrong with economic theory

The Economist has a cover story this week about how Economic theory contributed to the crisis. It’s a series of articles: the usual intro piece, one about financial economics (specifically the efficient market hypothesis), and one about macroeconomics.

And guess what, it cites Professor David Colander from Middlebury! Here’s the quotes:

According to David Colander, who has twice surveyed the opinions of economists in the best American PhD programmes, macroeconomics is often the least popular class. “What did you learn in macro?” Mr Colander asked a group of Chicago students. “Did you do the dynamic stochastic general equilibrium model?” “We learned a lot of junk like that,” one replied.

The above quote is about his most famous research, where he goes around and interviews the poor kids who are having to go through Economics PhD programs. He’s written two books (here’s the latest one), and a whole bunch of articles (link, link)

Mr Colander, therefore, thinks economics requires a revolution in technique. Instead of solving models “by hand”, using economists’ powers of deduction, he proposes simulating economies on the computer. In this line of research, the economist specifies simple rules of thumb by which agents interact with each other, and then lets the computer go to work, grinding out repeated simulations to reveal what kind of unforeseen patterns might emerge.

Colander is a huge critic of modern economic theory, and a huge complexity theory nut. He’s written endless articles critiquing economics, usually something like at least four or five articles a year. They’re quite interesting if you’re into such things, and the good thing is that they’re all non technical, there’s hardly an equation in any of them. These two articles are a good place to start: link, link. And if you’re interested in reading more, check out the Middlebury Econ department’s IDEAS page.

As for the series of articles in this week’s Economist, I think they’re a good read. It’s a good summary for a layman. I think it’s more nuanced though. The thing about all social science is that it’s not just a question of scientific methodology that is at stake, often times, the theories you support reflect your political affiliations. There’s every incentive to bend and nudge the “science” to fit pervading political views. Don’t just take it from me, Paul Krugman and Brad Delong appear to be having the same opinion after reading the Economist articles.

I can go on and on about social science methodology since it’s my absolute FAVORITE topic of discussion, but I’ll spare ya’ll the boredom, and I have other things to do right now.

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