What (I think) I am driving at:
The entire field of field of mainstream macroeconomics is actually moral philosophy practiced by mathematicians. That is, attempts to create coherent systems of ideas about how human society should be organized.
Virtually every "success" of macro economics is simply the story of one set of economists contradicting another set and being right. Moreover, we would have reached the correct answer in our own but for the wrong economists. In other words, macro cancels out and is a waste of intellectual energy.
If an economist thinks "equilibrium" is a useful concept for analyzing human behavior, he is a fool. No amount of paying attention to data will fix this.
Economists fool themselves the same way stock pickers do: in hindsight you can always come up for reasons why person A was right about this, while person B was right about that. But it simply is not true that, with enough information, you could know which person to listen to in real time.
Update: More thinking out loud. Using the blog to sort thru my own thoughts during rapid intellectual change of mind.
The problem is equilibrium analysis. This means that DSGE is out, but so is IS/LM, right?
- These people say economics is not a science: What Is Econ Good For?
- Krugman responds, is he right? Real Trouble With Econ
- The blogosphere seems to side with Wren-Lewis and Krugman in this debate. Who is right? Blogs Robert's Stochastic. Original piece "Did Econ Fail?" by Tony Yates. Simon Wren-Lewis. "Yes, Econ Policy Failed". Krugman. Post
Econ has two kinds of victories. In one, good econ tells us not to listen to bad econ. In the second, good econ tells us what history has already told us. Plus, history doesn't have a bad version that's wrong in the way that econ does.
Some seriously bad ideas have come straight from "mainstream econ". Liberals blame Larry Summers for deregulation, but he was just following Krugman's textbook. More complete markets (ie, more kinds of deriviatives) are more efficient and more stable. This is logically determined by econ theory, not just Ayn Rand nonsense. Of course, either way, it's empirically false.
Econ ideas that are pernicious: rational expectations, any kind of expectations (we use emotions to decide, not expectations), efficiency is good (why?), deregulation makes markets more efficient and more complete, minimum wage hurts poor people (again, theory trumps our eyes), the efficient markets hypothesis leads to all sorts of terrible ideas.
This is important from interfluidity, Steve randy Waldman should markets clear?. Micro as screwed as macro?