What is given below is not about generative grammar; see the original passage at this page. It is the 5th Q and A there. (I have changed the [ ] parts.)

The original link, provided in April 2003, is no longer functional. I have replaced it with the current link, but it does not provide the entire article. I am therefore copying the content of the page below.]

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05/01/98
Challenge

Magazine: Challenge, MAY-JUNE 1998
Section: THE STATE OF MODERN ECONOMICS
THE PROBLEMS WITH FORMALISM
Interview with Mark Blaug
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Q. I think it is fair to say that you are the leading proponent of the idea that a weakness of economics is that much of its theory is not falsifiable. If you cannot falsify something, then how can you demonstrate that it might be true? What is your definition of falsifiability?

A. In confronting a theory, it should be possible to think of evidence that, if found, would falsify the theory or would lead you to abandon the theory. You would realize that it was wrong. It could be falsified by some evidence. If, for example, someone says, "I believe such and such, and there is no evidence that would ever make me abandon this theory," then whatever this belief is, it is not science because scientific beliefs, theories, hypotheses, or whatever you want to call them, should be falsifiable at least in principle. Now all the problems begin.

Q. Did Karl Popper, the philosopher, originate this criticism of economics?

A. No, he said this about other areas. He said very little about economics, and what he did say was adulatory rather than critical. No, he never criticized economics. Popper was a philosopher of science. Most of the applications of his ideas were in physics, and he was particularly interested in relativity theory, quantum mechanics, and all that. Insofar as he was interested in social science, it was the sort of grand social science. He wrote The Open Society, which had three great enemies-Plato, Hegel, and Marx. But he was not particularly interested in economics and said very little about it, and some of the things that he said about it generate more questions than answers.

Q. Then who is the first person to raise falsifiability as an issue in economics?

A. Terrence Hutchison, who at an amazingly early age wrote The Fundamental Postulates of Economic Theory. In this book, he criticized the assumption of perfect knowledge in most of economic theory and introduced Popper. Hutchison, who is still alive and in his early nineties, has remained ever since a great disciple of Popper and the application of Popper in economics. I have followed in his footsteps. He was sort of a mentor of mine.

Q. Did you study with him?

A. He was one of my Ph.D. supervisors at Columbia University. He visited Columbia. I had two supervisors: George Stigler and Terrence Hutchison. They made a wonderful contrast. But actually there was quite a lot of Popper in Stigler. So, in some ways, I owe a lot to both of them.

Q. In the current mainstream practice of economics, is falsifiability ignored entirely?

A. No. It would in a sense be easier if it were ignored altogether. Mainstream economics pays lip service to it; that is, it always says, "Oh, yes, of course, economic theory should be confronted by evidence. And, of course, if the evidence is contrary, if it seems to refute the theory, oh, yes, we certainly pay attention to that, and we must adjust the theory or even consider possibly a new theory." So, they do not in any way disagree with the implications of falsifiability. They preach it but they do not practice it. In other words, when confronted with contrary evidence of some beloved theory, they adjust the theory, or they minimize the evidence. Sometimes they even ignore the evidence. They do not look very hard at contrary evidence, preferring to confirm rather than to look for refuting evidence.

Q. Isn't that the point--that economic theory is often so malleable that it can be applied to any series of outcomes?

A. Yes. But it is false to believe that this is something unique to economics. It is pervasive in all of social science and, indeed, it is actually a much more telling point in sociology and political science. Because they do not produce such hard conclusions, their theories are even more difficult to refute than economic theories. But even in the natural sciences it is rare to find a crucial experiment that conclusively confirms or conclusively refutes. If people in a discipline take empirical evidence seriously, it piles up and eventually causes the theory to be overturned. But it is not the kind of thing where you wake up one morning and suddenly say, "By God, there is refuting evidence and now I am going to throw away the theory."

So, there is a very slow buildup, even in natural sciences. And sometimes the empirical evidence is more in the nature of big events. To give you a trivial example, the inflation and the stagflation of the 1970s did more to persuade economists that there was something wrong with Keynesian economics--that you needed supply-side policies and all that--than all the empirical evidence on the econometric studies against Keynesian economics. Sometimes you have to be hit over the head with a hammer before you give up a beloved theory.

Q. What examples can you name in which evidence has been overwhelming and yet economics has not abandoned a theory?

A. Rational expectations and the new classical macroeconomics. The implication that no government policy can possibly influence the real output, income, and employment of an economy has been refuted again and again. And the contrary evidence is indeed acknowledged to a considerable extent by those who are the leading spokespersons for this classical macroeconomics. Yet new classical macroeconomics is still taught in all the textbooks, and there are still many macroeconomists who go on fervently believing that new classical macroeconomics is based on a firm foundation and that people indeed hold expectations rationally. There is even the evidence in the stock markets. Stock markets are one of the best places to test the idea because, of all markets, they are the one that most motivates people to be well informed. Yet the stock market is littered with anomalies, with market bubbles, which are impossible to explain if all traders in the stock market hold expectations rationally.

Q. In your article in this issue of Challenge you make much of formal modeling and the evolution from the work of Kenneth Arrow and Gerard Debreu. Why do you believe that such formal mathematical modeling has taken such a firm hold? Why has the profession gone in that direction?

A. I will give you the standard answer, although I think it is a very difficult issue. This is a deep question about the history of ideas. How did we get like this? If I could answer that question--if I thought I could confidently answer it--I would certainly rush to print with the answer. I am not sure that I can confidently answer it. But a standard approach among people who have thought about this is that, sometime after World War II, economics began to model itself after hard science. It wanted to be the one social science that looked exactly like physics. This led to mathematization, mathematical modeling, formal modeling, and the resulting worship of technique and formal elegance.

But the odd thing is this explanation does not really wash because if you know anything about physics--and I am an amateur physicist--physics is not at all like that. Physics takes evidence very seriously but many physical theories are rather muddled and confused and inconclusive. They are by no means very elegant. The subject we economists really have been aping is mathematics. We have turned economics into a kind of social mathematics that employs words such as "price," "market," "commodity." It looks like economics, but when you read an article that uses such words, all the relationships are mathematical relationships; all the inferences are mathematically drawn; and no thought is given to whether these mathematical variables, concepts, functional relationships bear any resemblance to real-world observation. Deirdre McCloskey [see Challenge, January-February 1997], whose writings I do not otherwise like, has said quite rightly that economists look to the math department, not the physics department. That is absolutely true.

Q. Let us try to take it one step further, though. Why would these mathematical models, which after all are not very complex by a mathematician's standard, catch on? Does the modeling serve as some kind of fraternal initiation that bonds economists?

A. The math is not all that difficult, although it does create an entry barrier. Most people can learn the mathematics, but you do have to study it. It is just as if we wrote economics in French. It would be an effective entry barrier because some people find it rather difficult to learn foreign languages. You do not have to be terribly intelligent, but you do have to be patient, and spend a lot of time at it. So, it is an effective entry barrier.

The people who have been initiated now have a vested interest in taking the barrier seriously and paying attention to it and giving it high prestige. Otherwise, it would not serve as an entry barrier. So, after a while, they justify the entry barrier because they possess this elegant particular virtue or technique. After it is created, it justifies itself. I shall add one other thing to this: the enormous output of Ph.D.s in economics in the United States--almost a thousand every year! Many of them do not go into academic life, but all the estimates suggest that about 45 to 50 percent do seek employment in academic life. They have been taught by their teachers a particular kind of economics, and, of course, they disseminate the same economics in their teaching and also by publishing in journals.

Journal discussions that are expressed mathematically are much easier to evaluate inasmuch as you can see whether a person has really written down a consistent mathematical model. That is much easier to judge unambiguously than a piece of economic wisdom expressed in prose, which is very difficult. Two people can easily disagree on whether the prose work is valuable or not. And these journal articles, which number in the thousands--there are three hundred or more journals in the English language in economics, publishing two, three, or four issues a year--have to be refereed. Most of them are refereed by volunteers who have to pass judgment quickly (once you get on the list you read dozens of articles, sometimes in one week). It is all much easier once you share a community of standards, mathematical standards essentially. It still does not explain how it all got started. And I really do not understand it.

Q. Has the computer reinforced this tendency even more? After all, regressions are so easy to do now.

A. Insofar as it has created, curiously enough, a kind of econometrics that is no longer very interested in empirical evidence either but in econometrics theory. Econometrics has become almost as much a spectacle as economic theory, and it is a theory of a statistical kind. Yes, economists run regressions and all that. But that is not what the econometric journals are full of. They are full of fancy new statistical analyses, a much more sophisticated way of analyzing time series that are almost ends in themselves.

Q. You make some rather categorical statements that economists pay no attention to the real-world implications or applicability of their models. Are there any clear exceptions?

A. Of course. If you wish to express criticism that will have an impact on ten or twenty thousand practitioners throughout the world, you have to exaggerate slightly to make any point at all. If you modify too much, nothing is left of it.

Q. What was it about the Arrow-Debreu thesis that you single out in your article in this issue of Challenge that so influenced the profession?

A. It was extraordinarily sophisticated mathematically, and even though it was published forty-four years ago, it is an elegant article using game theory, which was then very new. It used game theory in a way that nobody had expected to prove the existence of general equilibrium. It was elegant, it was rigorous, and it appeared to solve a problem. Does general equilibrium actually exist? To be a little more technical, can multimarket equilibrium actually exist in an economy? And it seemed to establish this. After all, Walras had argued this eighty years earlier but had never been able to prove it in any satisfactory way. So it appeared a wonderful example of elegant quasi-mathematical proof, and it seemed to elevate economics almost immediately to a subject rather like mathematics, certainly applied mathematics.

Q. You argue that such models require highly simplified assumptions in order to work. And you point out that, if these assumptions are relaxed, the conclusions do not hold up. But do economists try to relax these assumptions and test their conclusions?

A. Yes. There are many economists who look at relaxing these assumptions. "Let us see if we relax the assumptions-will the answer still hold?" But this can become rather alarming because, again, all we really do is work a little harder at the mathematical modeling to get it right. I think this way of thinking about establishing economic relationships is misleading. I am not against modeling, nor am I even against mathematics. It can be a very useful handmaiden, but not as an end in itself. Not as the way we judge whether, for example, an article is worth reading or not, an argument is worth listening to or not. What I am trying to do is to alter the intellectual priority that economists assign to different kinds of economics. That is, they assign enormous prestige to any kind of economic theory that is mathematically expressed, but almost none to historical argument or a case study. This is a clever way of marshaling empirical evidence to prove a particular economic theory. That is what is wrong.

Q. What examples come to mind of real-world issues where this kind of thinking in economics has led to errors in public policy or errors in judgment?

A. We have not been very good at thinking about the transition problem in Eastern Europe because we have not been thinking about how market economies actually work and what is required to make markets function. So our advice to East European governments has been very wooden because you have to understand how markets have to be created and how property rights have to be established. We spend little time studying the institutional structures in which markets are imbedded and without which they cannot work. And so, we have given either no advice or bad or misleading advice to East European governments. The transition problem of Eastern Europe has made me and other economists extremely aware of how lopsided our approach is to markets and the market mechanism and to capitalism. Creating markets is not just Gerard Debreu's general equilibrium theory. That is not very helpful. Indeed, it is probably even misleading in thinking about these problems.

Q. Can similar statements be made about the Asian financial crisis at the moment or, let us say, the inequality of income in America?

A. The problem with the Asian tigers is partly the same: We no longer give much attention to developing economies. It was a big subject in economics in the 1950s and 1960s but has gone into an almost total decline. One of the causes for this decline is that it is not a good area to work in if you want to produce fancy, technically puzzling pieces of mathematical modeling. So many young economists find that it is just not an exciting area in which to work. You cannot get promoted publishing articles on development economics. They will admit that these are important real-world problems, but that is not the way to get ahead. It is not the way to build your career in an area that prizes technical elegance.

Q. Is your solution, then, more empiricism?

A. More empiricism, more history, more getting your nose dirty in data, surveying people, asking opinion, monitoring behavior--yes, all of that.

Q. In the United States there seems to be some movement toward more empirical experimentation anyway. Have you noticed this?

A. I think a move toward experimental economics is very hopeful. The amazing thing is the enormous resistance that it has encountered.

Q. What example can you name of that?

A. Talk to any of the leading experimental economists. They will tell you about the enormous resistance that their work has run into. It is very hard to push experimental economics because you are running against this grain of formal modeling. It has made forward progress in recent years, but I am amazed how difficult it has been to interest economists in it and how little of it is part of mainstream economics as taught in graduate school.

Q. Have we learned anything fundamental in, say, the past quarter-century of economics?

A. Sure. Particularly in macroeconomics, how to deal with inflation, how to deal with unemployment. I think we've learned an enormous amount, particularly about steering the economy in a macro sense. We certainly learned a lot from the deregulation and privatization movement. Although there is a lot more to learn, when I contrast what we now know about these things with the days when I was a graduate student in the 1950s, I think we have made forward strides. But to some extent we have also gone backward.

Q. In what specific sense have we gone backward?

A. In the sense that economics as a completely formalistic discipline has turned students off from pursuing it. I do not know about America, but in Europe economics unfortunately is attracting fewer students, whereas business studies and business management is attracting more students. It is not just that economics has become technical; it is that economics prizes technicalities above everything else and that is why I call it formalism. Formalism is the tendency to worship the form rather than the content of the argument. That is the kind of subject it has become. We care only about the form in which an economic theory or hypothesis is presented, and we care almost nothing about the actual content of the hypothesis.

Q. What are the major issues on which we have not made progress?

A. Markets and how they actually function; that is, how they adjust to match demand and supply. We in economics know a hell of a lot about equilibrium, but we really don't know how markets actually get to equilibrium.

Q. In your view, what can save economics?

A. I am very pessimistic about whether we can actually pull out of this. I think we have created a locomotive. This is the sociology of the economics profession. We have created a monster that is very difficult to stop.

Q. Could real-world empirical facts or a severe economic cataclysm change it?

A. That would certainly change it, but I do not see that around the corner. Perhaps I am too pessimistic, and it is very depressing to stay there. There does not seem to me to be any way out.

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Interview with Mark Blaug

MARK BLAUG is professor emeritus, University of London, and visiting professor of economics, University of Exeter.