The Perils of Mathematization

Worthwhile Canadian Initiative has presented a list of its most viewed posts from 2010. The top post is so worthwhile that it warrants further promotion.

The President of the Minneapolis Federal Reserve had warned that unduly low interest rates would cause deflation. Of course, anyone with a handle on basic macroeconomics knows that the risk of leaving interest rates too low is inflation. (I do not believe that this risk is currently very serious.)

Nick Rowe suggested the following:

I notice he has an undergraduate in maths, then went straight into a PhD in economics. My conjecture: I bet he never took Intro Economics, or anything vaguely similar. I bet he waded straight into the mathematical deep end. And so he never really learned economics. . . . If you explain this in words, as you have to in Intro Economics, you have to get it right.

3 comments

  • wasn’t Keynes one of those math guys that jumped into the deep end as well?

  • Here is an article by Yanis Varoufakis in MRzine on Paul Samuelson, one of the main people responsible for the move to formalisation through mathematics. It also contains a discussion on how the approach was a radical departure from that of Keynes and others. Some parts of this discussion are debatable (e.g. the paragraph pasted below), but I think the article remains a good contribution to the debate on the pros and cons of formalisation regardless.

    Any formalist makeover of Keynes’ thinking required the conversion of his basic proposition into a provable theorem; an axiomatization of the hypothesis that, at a time of crisis, falling wages and interest rates do not lead to a recovery led by employment and investment upticks. However, such an axiomatic proof can only result through a Debreu-like General Equilibrium model. Ironically, the latter comes with a sine qua non hidden axiom: that both investment and employment will rise, ceteris paribus, if wages and interest rates fall.

  • “Ironically, the latter comes with a sine qua non hidden axiom: that both investment and employment will rise, ceteris paribus, if wages and interest rates fall.”

    Yah it is ironic only if you think public policy circa mid seventies is one large irony play.

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