By John Myles White on 6.17.2011
The existence of recessions no more invalidates economic theory than the existence of AIDS invalidates molecular biology.
Posted in Aphorisms, Economics | 1 Response
Nice quote. The inability of neoclassical macroeconomics as a profession to forecast crises does seem to indicate some flaws in methodology. Neoclassical models make implausibly aggressive assumptions early on (production functions, money multipliers) – in effect, very low-variance priors. Heterodox, “Post Keynesian” economists like the late Wynne Godley and Marc Lavoie employ a more skeptical, Bayesian, empirically driven approach. Drawing on their “stock-flow consistent” models, they have even established an impressive forecasting record around the big crises, yet they remain obscure. It’s too bad the field does not lend itself to model evaluation.
PS- Love your blog / book /code examples, thanks!
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