The Pretense-of-Knowledge Syndrome

16 October 2010 at 8:23 am 4 comments

| Dick Langlois |

Has Ricardo Caballero been reading Hayek (or maybe Brian Loasby)?

In this paper I argue that the current core of macroeconomics — by which I mainly mean the so-called dynamic stochastic general equilibrium approach — has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with the precision that it has about the real one. This is dangerous for both methodological and policy reasons. On the methodology front, macroeconomic research has been in “fine-tuning” mode within the local-maximum of the dynamic stochastic general equilibrium world, when we should be in “broad-exploration” mode. We are too far from absolute truth to be so specialized and to make the kind of confident quantitative claims that often emerge from the core. On the policy front, this confused precision creates the illusion that a minor adjustment in the standard policy framework will prevent future crises, and by doing so it leaves us overly exposed to the new and unexpected.

Entry filed under: - Langlois -, Austrian Economics, Bailout / Financial Crisis, Methods/Methodology/Theory of Science. Tags: .

Econometrics Quote of the Day “The Meanest and Most Contemptible Persons in Society”*

4 Comments Add your own

  • 1. Craig Pirrong  |  16 October 2010 at 8:44 am

    Yes, Cabellero has been reading Hayek. He quotes extensively from him in this paper.

  • […] here: The Pretense-of-Knowledge Syndrome « Organizations and Markets This entry is filed under Other. You can follow any responses to this entry through the RSS 2.0 […]

  • 3. Hedegaard  |  16 October 2010 at 10:01 am

    And it wouldn’t be the first ‘Austrian-inspired’ paper, Cabellero has made. I have found this usefull:

    Creative Destruction And Development: Institutions, Crises, And Restructuring –

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=238248

  • 4. Arash  |  16 October 2010 at 1:59 pm

    What Craig Pirrong said.

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