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Post-Autistic Economics Network
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Is There Anything Worth Keeping in Standard Microeconomics? Bernard
Guerrien
(Université Paris I, France)
The French students’ movement against autism in economics
started with a revolt against the disproportionate importance of
microeconomics in economic teaching. The students complained that nobody had
really proved to them that microeconomics was of any use; what is the
interest of going through “micro1”,
“micro2”, “micro3”, etc., using lots of mathematics to speak of fictitious
households, fictitious enterprises and fictitious markets? Actually, when one thinks about it, it turns out that
microeconomics is simply “neoclassical theory”. Realizing this, I agree with the French students when they say
that: 1)
In a course on economic theories, neoclassical
theory should be taught alongside other economic theories (classical
political economy, marxist theory, keynesian theory, etc.) showing that it is
just one among several other approaches; 2)
The principal elements and assumptions of
neoclassical theory (consumer and producer choice, general equilibrium
existence theorems, and so on) should be taught with very little mathematics
(or with none at all). The main
reason being that it is essential for students to understand the economic
meaning of assumptions made in mathematical language. As they study
economics, and not mathematics, students must decide if these assumptions are
relevant, or meaningful. But, for
that, assumptions must be expressed in clear English and not in abstruse
formulas. Only if assumptions, and
models, are relevant, can it be of any interest to try to see what “results”
or “theorems” can be deduced from them. I am convinced that assumptions of standard microeconomics
are not at all relevant. And I think that it is nonsense to say - as some
people do (using the “as if” argument) - that relevant results can be deduced from assumptions
that obviously contradict almost everything that we observe around us. The main reason why the teaching of microeconomics (or of
“micro foundations” of macroeconomics) has been called “autistic” is because
it is increasingly impossible to discuss real-world economic questions with
microeconomists - and with almost all neoclassical theorists. They are trapped in their system, and
don’t in fact care about the outside world any more. If you consult any
microeconomic textbook, it is full of
maths (e.g. Kreps or Mas-Colell, Whinston and Green) or of “tales” (e.g.
Varian or Schotter), without real data (occasionally you find “examples”, or
“applications”, with numerical examples - but they are purely fictitious,
invented by the authors). At first, French students got quite a lot of support from
teachers and professors: hundreds of teachers signed petitions backing their
movement -
specially pleading for “pluralism” in teaching the different ways of
approaching economics. But when the
students proposed a precise program of studies, without “micro 1”, “micro 2”, “micro 3” ... , without
macroeconomics “with microfoundations” or with a “ representative
agent ” -, almost
all teachers refused, considering that it was “too much” because “students must learn all these things,
even with some mathematical details”.
When you ask them “why?”, the answer usually goes something like this:
“Well, even if we, personally, never use the kind of ‘theory’ or ‘tools’
taught in microeconomics courses (since we are regulationist, evolutionist,
institutionalist, conventionalist, etc.) -, surely there are people who do
‘use’ and ‘apply’ them, even if it is
in an ‘unrealistic’, or ‘excessive’ way”. But when you ask those scholars who do “use these tools”,
especially those who do a lot of econometrics with “representative agent”
models, they answer (if you insist quite a bit): “OK, I agree with you that it is nonsense to
represent the whole economy by the (intertemporal) choice of one agent -
consumer and producer - or by a unique household that owns a unique firm; but
if you don’t do that, you don’t do anything!”. There are also, some microeconomists who try to prove, by
experiments or by some kind of econometrics, that people act rationally. But, to do that you don’t need to know
envelope theorems, compensated (hicksian) demand or Slutsky matrix! Indeed,
“experimental economics” has a very
tenuous relation with “theory”: it tests very elementary ideas (about
rational choice or about markets) in very simple situations - even
if, in general, people don’t act as theory predicts, but that is another
question. Microeconomics:
“unrealistic ” or “irrelevant” ? Most of the time microeconomics is criticized because of
it’s “lack of realism”. But “lack of
realism” doesn’t necessarily mean irrelevance
; the expression is usually understood as
meaning that the theory in question is “more or less distant from
reality”, or as giving a more or less acceptable proxy of reality (people
differing about the quality of the approximation). The idea is implicitly this: “if we work hard, relaxing some
assumptions and using more powerful mathematical theorems, microeconomics
will progressively became more and more realistic. There are then - at
least - some
interesting concepts and results in
microeconomics, that a healthy, post-autistic, economic theory should
incorporate”. That’s what Geoff Harcourt implicitly says in the post-autistic economics review, no.11, when he writes: Against this macroeconomic
background, modern microeconomics has a bias towards examining the behaviour of
competitive markets (as set out most fully and rigorously in the Arrow-Debreu
model of general equilibrium), not as reference points but as approximations
to what is actually going on. Of
course, departures from them are taught, increasingly by the clever
application of game theory. Moreover,
the deficiencies of real markets of
all sorts are examined in the light of the implications, for example, of the
findings of the asymmetric information theorists (three of whom - George
Akerlof, Michael Spence, and Joe Stiglitz - have just (10/10/01) been awarded
this year's Nobel Prize. From Amartya
Sen on, the Nobel Prize electors seem to be back on track). What is Harcourt
saying? He is telling us that the
Arrow-Debreu model has something to do with “the behaviour of competitive
markets”; he is saying that game
theory can be cleverly “applied”; he
says that there are “findings” made by Akerlof, Spence and Stiglitz. If all this is true, then students have to
learn general equilibrium theory (as giving “approximations to what is
actually going on”), game theory, asymmetric information theory, and so
on. That means that they need micro
1, micro 2, micro 3... courses (consumer and producer choice, perfect and
imperfect competition, game theory, “market failures”, etc.). I don’t agree at all with Geoff Harcourt because: 1. The Arrow-Debreu model has nothing to do with competition and markets: it is a model of a “highly centralized” economy, with a benevolent auctioneer doing a lot of things, and with stupid price-taker agents; 2. Game theory cannot be
“applied”: it only tells little “stories” about the possible consequences of
rational individuals’ choices made
once and for all and simultaneously by all of them. 3. Akerlof, Spence and Stiglitz have no new
“findings”, they just present, in a mathematical form, some very old ideas -
long known by insurance companies and by those who organize auctions and second hand markets. 4. Amartya Sen, as an economist, is a standard microeconomist (that is what he was awarded the Nobel Prize for): only the vocabulary is different (“capabilities”, “functionings”, etc.). But, perhaps, all “post autistic” economists won’t agree
with me. It would be good then that they give their opinion and, more
generally, that we try to answer, in detail, the question: Is there
anything worth keeping in microeconomics - and in neoclassical theory? If there is, what? SUGGESTED
CITATION: ___________________________ Bernard Guerrien is the author of La Théorie des jeux
(2002), Dictionnaire d'analyse
économique (2002) and La théorie économique
néoclassique. macroéconomie, théorie des jeux, tome 2 (1999). |