As I came to develop a deeper understanding of economics, I became increasingly convinced that Kaldor’s approach was the only way to prevent economics ossifying into pure formalism. “Stylised facts” was his methodological weapon, and I can do no better than quote from his essay “Capital Accumulation and Economic Growth” (1961), with its strongly implied attack on the neoclassical approach to model construction:
“We all agree that the basic requirement of any model is that it should be capable of explaining the characteristic features of the economic process as we find them in reality. It is no good starting off a model with the kind of abstraction which initially excludes the influence of forces which are mainly responsible for the behaviour of the economic variables under investigation; and on finding that the theory leads to results contrary to what we observe in reality, attributing this contrary movement to the compensating (or more than compensating) influence of residual factors that have been assumed away in the model.
Skidelsky goes on to explain Kaldor's use of stylized facts as being derived from a combination of historical data and intuition in reasoning to the best explanation. This is called "abduction" although Skidelsky doesn't use the term.Any theory must necessarily be based on abstractions; but the type of abstraction chosen cannot be decided in a vacuum. ... Hence the theorist, in choosing a particular theoretical approach, ought to start off with a summary of the facts which he regards as relevant to his problem. Since facts, as recorded by statisticians, are always subject to numerous snags and qualifications, and for that reason are incapable of being accurately summarised, the theorist, in my view, should be free to start with a ‘stylized’ view of the facts – i.e. concentrate on broad tendencies, ignoring individual detail, and proceed on the ‘as if’ method, i.e. construct a hypothesis that could account for these ‘stylized’ facts, without necessarily committing himself on the historical accuracy, or sufficiency, of the facts or tendencies thus summarized” (177–178).In my opinion, the stylised facts approach stands up pretty well to the criticisms that have been made against it.
This post is a should-read for those interested in Keynesian and Post Keynesian economics. There are many more good points Skidelsky brings out.
Robert Skidelsky's blog
Stylised Facts
Robert Skidelsky | Emeritus Professor of Political Economy at the University of Warwick
Acta Oeconomica, Vol. 67 (S), pp. 31–35 (2017)
1 comment:
Post-Keynesianism, too, is indefensible
Comment on Robert Skidelsky on ‘Stylised Facts’
Eighty years ago, Keynes got macro wrong and Keynesians did not notice it until this very day. Yet, anti-Keynesians did not notice it either. There is no better proof of the abysmal scientific incompetence of economists.
Keynes has to be credited for realizing that the economics of Jevons/Walras/Menger/Marshall was false at its core and that nothing less than a paradigm shift was needed: “The [neo-]classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”
Primary Methodological Directive: Every economist who does not see the necessity of a paradigm shift is a moron. Fact is (i) that Walrasianism/Marshallianism has already been dead in the cradle, (ii) that Keynes was right on this point, and (iii), that it is impossible to go back before Keynes.
The Keynesian Revolution failed because Keynes messed up the move from microfoundations to macrofoundations.#2 Keynes’ own methodological blunder can be exactly located in the General Theory: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (p. 63)
This two-liner is conceptually and logically defective because Keynes did not come to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)
Because profit and income are ill-defined the whole theoretical superstructure of Keynesianism is false. It was Allais who identified and rectified Keynes’ lethal foundational blunder.#2. Kaldor realized that something was wrong but did not make anything of it.#3 Thus, Kaldor missed the pivotal stylized fact of economics.#4
Both, the pro-Keynesians and the anti-Keynesians have until this very day NO idea of the fundamental concepts of economics, viz. profit and income. Fact is that Walrasianism, Keynesianism, Marxianism, Austrianism, and Pluralism are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. There is NOTHING to chose.
Egmont Kakarot-Handtke
#1 Keynes’s message for contemporaries
https://axecorg.blogspot.de/2016/11/keyness-message-for-contemporaries.html
#2 How Keynes got macro wrong and Allais got it right
https://axecorg.blogspot.de/2016/09/how-keynes-got-macro-wrong-and-allais.html
# 3 Kaldor, N. (1983). Grenzen der General Theory. Berlin: Springer, p. 29, fn. 2
#4 Why Post Keynesianism Is Not Yet a Science
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1966438
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