In an interview, economist Dani Rodrik notes:
“The root of it is
the problem that the profession has more or less the wrong idea about how
economics as a science works. If you ask most economists, "What kind of a
science is economics?," they will give a response that approximates natural
sciences like physics, which is that we develop hypotheses and then we test
them, we throw away those that are rejected, we keep those that cannot be
rejected, and then we refine our hypotheses and move in their direction.
This is not how
economics works — with newer and better models succeeding models that are older
and worse in the sense of being empirically less relevant. The way we actually
increase our understanding of the world is by expanding our collection of
models. We don't throw out models, we add to them; the library of models
expands. Social reality is very different from natural reality in that it is
not fixed; it varies across time and place. The way that an economy works in
the Congo is very different from the way that it works in the United States. So
the best that we can do as economists is try to understand social reality one
model at a time. Each model identifies one particular salient causal mechanism,
and that salient effect might be very strong in the Congo but it may be very weak
at any point in time in the United States, where we may need to apply a
different model.
If you look at the
progress of economics all the way from perfect competition to imperfect
competition, from incomplete information to behavioral economics, at every step
we have said, "Here are some additional realities for which we need newer
models." Behavioral economics doesn't mean that we want to ignore models
in which people are rational. There are plenty of settings where presuming
people are behaving rationally is still the right way to go.”
Related:
Presentations from a conference on “What’s Wrong with the
Economy—and with Economics?”
http://www.nybooks.com/blogs/gallery/2015/mar/29/whats-wrong-with-the-economy/