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Economist here. You're right that "neoclassical economists" or rather macroeconomists assume self-interested behavior on average rather than at an individual le

by Gimpei 12y ago

Economist here. You're right that "neoclassical economists" or rather macroeconomists assume self-interested behavior on average rather than at an individual level. Furthermore, most recognize that people do not typically behave in the manner posited by macroeconomic theory at an individual level. There's also a mountain of experimental evidence backing this up (see Kahneman for example). However, they don't provide any evidence for why the discrepancy in individual behavior averages out in aggregate, apart from it being "intuitive." Actually, you don't have to be a behavioral economist to find the kind of assumptions needed for macroeconomic modeling pretty dubious. Modern Dynamic Stochastic General Equilibrium models typically take a couple of agents, multiply them by a million and call it consumer demand. The kind of assumptions needed to make this leap have nothing to do with greed and instead concern income distribution and the way it affects demand. It's called the aggregation problem if you're interested. All of which is to say that the economics profession is by no means united on this question. Most microeconomists I know think that microfounded macro models are a joke. For this reason Cal Tech doesn't even teach macro anymore.

nhaehnle 12y ago
Most microeconomists I know think that microfounded macro models are a joke. The sad thing about this is that fundamentally, the Lucas critique has a lot of merit. It's just that what macroeconomists used as "microfoundations" is basically a joke because, like you explain, they aren't true microfoundations. Furthermore, even if the kind of aggregation that "microfounded" macroeconomics always does would lead to reliable predictions, there is still the issue that aggregation makes the hidden value judgement that issues of distribution and fairness don't matter. After all, when you aggregate, you only see the averages. Part of the problem is that the important problems of economics - i.e., macro-economic problems - are genuinely hard[1], but public economic discourse acts happens as if much more were known than really is. When it comes to the economy, it's as if we were trying to fly to the moon without knowing about Newton's laws of motion, while at the same time there are powerful and wealthy interests trying to convince everybody that the earth is a disk. [1] They're not hard in the sense that research problems in mathematics are hard; they're hard in the sense that there is a crazy number of hard to measure variables, there's no way to run repeatable experiments, and so on.

by Gimpei 12y ago

nhaehnle 12y ago

Most microeconomists I know think that microfounded macro models are a joke. The sad thing about this is that fundamentally, the Lucas critique has a lot of merit. It's just that what macroeconomists used as "microfoundations" is basically a joke because, like you explain, they aren't true microfoundations. Furthermore, even if the kind of aggregation that "microfounded" macroeconomics always does would lead to reliable predictions, there is still the issue that aggregation makes the hidden value judgement that issues of distribution and fairness don't matter. After all, when you aggregate, you only see the averages. Part of the problem is that the important problems of economics - i.e., macro-economic problems - are genuinely hard[1], but public economic discourse acts happens as if much more were known than really is. When it comes to the economy, it's as if we were trying to fly to the moon without knowing about Newton's laws of motion, while at the same time there are powerful and wealthy interests trying to convince everybody that the earth is a disk. [1] They're not hard in the sense that research problems in mathematics are hard; they're hard in the sense that there is a crazy number of hard to measure variables, there's no way to run repeatable experiments, and so on.