The World in the Model: How Economists Work and Think

"If you think of the starting point of modern economics as, say, Adam Smith , what she’s really trying to explain is how we got from him—he was doing economics verbally, not using maths or explicit models but broad laws of society, in an 18th century kind of way—to today’s economics, which is these tightly specified models. A conventional history of economic thought would be one that went, ‘Okay, what did Adam Smith say? He talked about the invisible hand. What did Malthus talk about? What did Marx talk about?’ This book is more, ‘How do economists work? What’s the deep methodological underpinnings of what they do every day?’ Chemists use test tubes and Bunsen burners; what do economists use? It’s a natural history of economics in some ways, rather than a history of thought. One thing I like about this book is that by looking at what economists really do, it helps you avoid some of the conflations that are sometimes made. One of those confusions is that ‘models are the same as maths.’ People think that economic modelling is just using equations. Models are much broader than that. She defines a model by using the idea of a small world that you create that somehow, in an interesting and complicated way, is supposed to map onto the actual world. That small world can then be manipulated so you can do little experiments with it. You might even think about one of those old papier-mâché models of the solar system—little planets on bits of wire. You can move them around and see how the orbits go around. That’s basically what economists have been trying to do. There have even been occasions where they actually made mechanical models… Yes. Sometimes they’re just verbal, like David Ricardo’s models. Then there is the modern method, which are these tightly specified mathematical models that you might investigate using computers. Her idea is that economists create a small world and then manipulate it and that somehow allows them to understand. An interesting point is that these models then have a double life. Part of what economists do is just understanding the model. What happens when you manipulate it? What happens when you push particular levers, maybe metaphorical levers? How does that model function within its own terms? Then, the trickier part is, what do those experiments say? What do they imply for the actual world out there? Yes, a lot of what economists do—and here we might get into some of the criticisms and complaints that people have made about economists, post the financial crisis , and about economic education—is the inquiring into. All economists seem to be doing, sometimes, is creating models and manipulating them forever and becoming completely self-referential. It’s just about the model and ‘What if we add this lever and that lever and create this more and more complicated structure and what does that do?’ That’s the inquiring into. The inquiring with—‘How does this map onto the world?’—is obviously a really important part of it that, perhaps, economists haven’t been doing quite so well. She’s not really making that point in the book, that’s just my extrapolation. But it’s a really important distinction she’s making. It’s a big, rich book, but I don’t think that is the main thrust. The main point of the book—and this in itself is a really big job—is just to show, using various case studies, these ‘exhibits,’ if you like, how the daily apparatus of economists has changed. That’s really what she’s doing. There are sometimes slightly lazy, straw-mannish type objections that ‘all economists do is create models’ and that this is somehow bad in itself. At the end, she makes quite a nice analogy. She says that another kind of small world that also maps onto the real world in an interesting way is a poem (or a painting). A sonnet, for example, is a small world that uses very tightly defined constraints, but when it’s done well can be a vehicle for incredible expansion and inquiry into truth. How that happens is an extraordinary and mysterious thing. So the small worldness in itself can’t be the problem. I thought that was a lovely way of ending the book. She talks about the naturalisation of models in economics and these three moments in history. One of them was the 18th century French school. This was Quesnay who, in a way, was the first to create something akin to a modern economic model. His Tableau Economique was this incredible series of zigzags with numbers. He was really quite visionary in doing that, creating a macroeconomic model of the French economy. She calls that the ‘prehistory’ of economic modeling, the initial tremor before economic modelling really got going. “A sonnet, for example, is a small world that uses very tightly defined constraints, but when it’s done well can be a vehicle for incredible expansion and inquiry into truth.” You then have the second episode in the late 19th century, the so-called ‘marginal revolution’ in neoclassical economics, which is still a lot of what is taught in university courses today—supply and demand, utility functions and all that sort of stuff. Then the final big modelling explosion, which really embedded modelling into economics, was the interwar period—the macroeconomic modelling done by people like Keynes and Frisch and Tinbergen. It’s a very sophisticated book. It’s beautifully written and I think she does well in making it as accessible as possible. But it does assume that you know a certain amount. A more basic way of talking about the history of thought is to go through the thinkers and say, ‘This is what Smith said and this was the neoclassical revolution.’ She’s assuming you know that."