Home > Business Cycles > Economists and Their Models

Economists and Their Models

Economics research heavily involves the use of mathematics. The late Paul A. Samuelson, the first Nobel laureate in economics, is widely credited (or sometimes criticized) for starting the trend towards the use of math. It is now the case that all quality graduate economics programs stress mathematical models in almost every course that is offered. Economists are very good at developing mathematical models for business cycles and many other subject areas. For example, my text in macro describes four models of business cycles and each of those models builds in somewhat different assumptions about how the various sectors of the economy operate.

But one unfortunate side effect of the talent for model-building is that it is possible to find a model that will provide almost any answer that one may want on a topic. A well-known economist was once quoted as saying that he had desk drawers full of economic models and, if he were given any result that a person thought to be true, he could find a model in one of his desk drawers that would produce the desired result. As a result, it is far too often the case that, on a given subject, one economist will appeal to some model of his/her choosing to justify a position. Another economist may use a different model, justifying another position that he or she prefers. As a result, it is possible to find all sorts of policy recommendations that differ across economists. To a lay person, this may seem bewildering but this multiplicity of opinions actually reveals the importance of empirical work.

One of the primary purposes of applied testing of economic theories is to allow economists to choose among alternative economic theories. Without the ability to discriminate, economics becomes much like a religion where anything goes. Just pick your preferred model, and one may believe almost anything. One of the unfortunate aspects of macroeconomics is that there is no widely agreed upon model of the business cycle and aggregate economies. It is difficult to test models of the business cycle and so statements about policy in a business cycle setting are frequently without substance. They are “religious” exercises based upon the preferred model of the economist pontificating on a topic.

My advice to the lay person is this. Pay almost no attention to business cycle statements since, most of the time, they are without serious empirical support.

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Categories: Business Cycles
  1. July 16, 2014 at 1:17 PM

    Describing economic cycles is much like describing waves on a body of water. We can generalize and get valuable insights. However, excessive measurement of waves, causal currents and the like produces results that do not offer much useful information. The cost exceeds the benefit. As economists, let us remember what Alfred Marshall told us a century ago. Math is shorthand. Use it to sketch ideas and then use that sketch as a basis to explain the topic in prose. Once satisfied with the text, tear up the math.

    –Dr. John

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