Landscape Of Economics Religions
September 22, 2011 4 Comments
This topological map (HT Yglesias) of various common explanations of/solutions to The Financial Crisis™ is pretty interesting. Maps are good. Diagrams are good. I would like to see more of this kind of thing, and I would like to see this particular effort expanded upon, if only so that I might have a better chance of understanding just what the heck people think they’re saying when they use phrases like ‘aggregate demand’.
Yglesias says he’s in the Fiscal/Monetary intersection. The diagrams’ creator doesn’t quite say where he is but says he is unconvinced by certain explanations (the ‘recalculation’ argument, I think).
I don’t quite know where I am. I’m often inclined to side with Arnold Kling’s “PSST” but I also agree with a lot of what I see Scott Sumner (“NGDP Targeting”) write, even to the point where he’ll change my mind about something. I’m not sure whether PSST and NGDP Targeting go together or conflict though. I don’t know if there’s a draw-able intersection that could contain me.
What’s interesting to me about this though is how it illustrates that much of economics is basically storytelling and metaphor. These are all diagrams of various peoples’ preferred metaphors (though some prefer to call them ‘models’) for what the economy is like. In this sense economics is closer in spirit to religion (imagine a similar diagram showing the various interpretations of, say, the Holy Trinity) than to science. Or if you prefer, it is mythology. This is a map of the various economics myths people love to tell each other to try to understand the world.
And, it seems to me that (as with mythology) people can prefer or be attracted to this or that metaphor for reasons having very little to do with objective fact. By the nature of things, none of these explanations of the economy or proposed solutions to same have solid experimental support or objective, quantifiable fact to back them up. Whichever dot you see as your place on the diagram, it’s likely that you gravitate to that dot mostly because you like the economics story that it tells.
In that sense it might be more informative to group these
explanations stories according to why people like them. What is appealing about them?
I would say that what appeals to people about “Keynesian” explanations of the economy are that they are (1) centralized – that is, they feature centralized government power and central bankers as prominent protagonists; and (2) low-dimensional – that is, they promised that one can fix the economy by twiddling a very small number of dials. Certain people just seem to like these results of “Keynesian” ideas, and, as far as I can tell, it’s why they’re “Keynesian”.
On the flip side, why do I like PSST? I think partly because it is decentralized and high-dimensional. It tells the story of a complex society of individuals, trying to find a new emergent order. There is no central protagonist, and there is no small set of dials to be turned to fix the economy. I don’t think I can “prove” that this story is a better description of the economy; it’s far more accurate to just say that I like this story better.
So right there we have a useful way to group stories: dimensionality. How many dimensions do you think the economy has? Small or a lot? One could literally sort economics theories according to that number. The results might be enlightening indeed (who else thinks the economy is one-dimensional and thinks it can be fixed by twisting one dial?)
What about you? What sort of economics myth do you like?