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Post-Autistic Economics Network |
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). |