No End to the Consenses in Macroeconomic Theory

If you have ever taken any international relations classes you may have come across the Popparian vs Kuhnian debate. On the Social Sciences EBSCO Host database I found a great article from the American Journal of Economics and Sociology April 2013 issue titled “No End to the Consensus in Macroeconomic Theory? A Methodological Inquiry.” This article by John McCombie and Maureen Pike is one that I recommend everyone in class read. At least the first 8 or so pages. The authors’ explanation of microfoundations and DSGE models is on point. What I loved about this article are the inferences about economic paradigms. I was able to combine my PSCI 321 knowledge with ECON 488 to more clearly see the value of macroeconomics.

The question is do economic theories follow a linear path or a paradigmatic one? Karl Popper made the claim that theories build upon each other as hypotheses are falsified. In opposition, Thomas Kuhn believes that with the addition of new information, a revolution occurs in theory and a new paradigm is formed. What makes paradigms distinct is their incommensurability. Terms and facts from the old paradigm have no relation to the new paradigm. An often cited example of the is the shift from the Ptolemaic system where the sun revolves around the Earth to the Copernican system where the Earth revolves around the Sun. All belief in the Ptolemaic system has clearly been left in the past. So in relation to economics, the authors describe the Neoclassical Synthesis and the New Neoclassical Synthesis as consecutive paradigms. But economics does not have complete incommensurability. Rather, there is weak incommensurability since the separate schools of thought often build upon the same models, but disagree when it comes to the results.

Are these even paradigms at all since no big revolution of knowledge has occurred in macroeconomics? Is it coming? Maybe economics is not meant to be seen in a Kuhnian view but rather with a Popparian view. Popper emphasized falsifiability: when a hypothesis is falsified or disproved, it is changed until the next hypothesis is tested and falsified. Hypotheses build upon each other as they are falsified. But in economics, models are not thrown away when theories are falsified. Nothing is changed in fact when theories are falsified. Economists just hold onto their schools with all the strength they have no matter how crazy they seem. This would not be seen as Popparian at all. Its not even scientific. New Keynesian DSGE models failed. They were not able to be applied to the real economy in a helpful way. I see this as being falsified. But DSGE models have not been changed to allow for new models to build upon them. There is no linear path. Instead we are suggesting that DSGE models are either “good enough” or they should be thrown away completely and replaced with models which do not exist yet.

There is a disconnect between economics and the scientific method whether it involves a linear building of hypotheses and theories or a revolution of knowledge followed by a paradigm shift. What we do have is chaos. No single school has been named THE school and no school is willing to give up even if it is clear it is wrong. So is economics really science? Is it even worth paying attention to at this point? When macroeconomic theories are being falsified and spiraling into chaos, where is the revolution?

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