Fundamentalists vs Realists: The gap in economics

Paul Romer states that the current crisis represents the gap between the Fundamentalist economist and the Realist economist (ht Economist’s View, Greg Mankiw, Econlog – as I had them all open at the same time and would have felt mean only picking one 😛 ). I find this characterisation a bit extreme, and definitely subjectively loaded.

Fundamentally, a better characterisation (which more fairly divides up the discipline) was provided by Mankiw, comparing the groups to scientists and engineers (we have discussed this here).

Anyway, let us put down the definitions that Romer provides, and see what we can get out of them.

Romer states that the:

Fundamentalists have an unswerving faith in models. Policies should always be derived from the best available model. Data should be filtered through a model. If an observation does not fit within the context of a model, it should be excluded from consideration.

While the:

Realists are more conscious of the limits of models and more comfortable with a division of labor between the researcher who improves the models and the clinician who makes policy decisions. They recognize that the power of models comes precisely from a commitment to abstraction that filters out potentially important complexity. They believe that useful evidence can accumulate with direct experience as well as through the research process of testing and refining models.

Sorry, but I do not think that the majority of economists, even the most technically focused economists, think in the “Fundamentalist” way. Furthermore, those that do think in that way are likely to be the economists that have no interest in policy or applicability – so I can’t see why they would form a group trying to drive policy.

All economists realise the limitations of their models. In the current case, economists think different things, which leads to them assuming different premises. If the general economic model provides a process of moving from premises to conclusions (which I think it does) then even if all economists are using the same general model/method we will still come up with different results, as our premises are different.

Romer choice of language is revealing here. Fundamentalist is a derogatory term while realist has positive connotations. By making it that someone who focuses more intently on models will be pushed towards the derogatory category, Romer is implicitly criticising people who discuss economic situations using a model as a frame.

I do agree that people who model need to be careful to remember that their core assumptions are not necessarily true, or sufficient, for analysing the world. However, I think Romers choice of terminology demeans the useful contribution that modeling and framing issues actually has on the process of policy creation.

What would your distinction be

If I was to make groups along the same lines as Romer, I would start by saying that everyone has some, deductive model which describes reality (which is partially the result of positivist statements and partially the result of some a priori truths).

They then feed in normative statements – their value judgments, in order to reach a conclusion.

My division would be between different types of value judgments. It is a subjective process choosing what set of value judgments I support, but splitting economists across those lines is the only way to do it. Otherwise you end up randomly attacking people for developing economic models – where model development (is) a process which makes the positivist process more transparent and more useful!