Wednesday, March 09, 2016

Dodgy modelling - time for reform?

I have railed against the misuse and abuse of modelling, particularly economic modelling in many fora, including on this blog (e.g. August 8, 2008).  Now Ross Gittins, whose views readers of this Blog will know I respect, has written claiming "Time to take a stand against misleading modelling"

In Gittin's posting there is a clip from the Australia Institute calling for a new code of conduct to be introduced for modelling, particularly modelling used to influence policy choices. Peter Martin, Economics Editor of The Age also alerted readers to how recent modelling was being used deliberately to confuse for political ends. 

Gittins says "I can't remember when so many economists of repute have gone out of their way to attack a modeller's findings, and done it so bluntly." If this is the case then it is good news that economists themselves are aware of the systemic failings of modelling practice within their own ranks.  But do they go far enough?  I am afraid the answer is a resounding no! As Gittins articulates:

"...modellers concede that "general equilibrium models are necessarily a simplification of the economy and, as such, they can only incorporate a stylised representation of the tax system".

I'd say models are a cartoon caricature of the economy, quite incapable of answering the intricate questions we ask of them."

On another front Tom Clark outlines how we all collude to 'model' our understandings through the use and conservation of language.  In his call for a new language to talk about the economy  he says:

"Trade became respectable, and lending money for profit, which had been sinful usury, became a fruitful outlet for thrift. Credit became interwoven with honour and pride, while debt was shot through with weighty moral obligations.

These are the orthodox financial prejudices that have, with brief exceptions, held sway ever since – in Gladstone’s red box as much as Thatcher’s handbag. When the 2008 economic storm hit (a metaphor which itself does ideological work, implying an act of nature rather than a crisis of human folly) the then shadow chancellor Osborne reached for a tried and tested script. “The cupboard is bare,” he sternly announced, likening bankrupt Britain to an over-indebted home.

Economists have objected to lazy comparisons between domestic and national finances for the best part of a century: governments can tax, grow or even print their way out of debt, three important escape routes not open to individuals. In the 30 years after the second world war there were deficits in all but six. But far from this leaving Britain’s cupboard bare, the national debt dwindled from 250% to 50% of GDP. 

So the household metaphor is deeply misleading but it remains irresistible to politicians and powerful with the public. It offers a way to make sense of the otherwise baffling billions in national debt through analogy with everyday experience. Furthermore, explains Jonathan Charteris-Black, an expert on rhetoric at the University of the West of England, it embeds “one of the most widely used of all political images: the nation as family, with the government as responsible parent”."

Whilst modelling remains the main form of praxis of economists and the purveying of conceptually dead metaphors a major aspect of political and journalistic praxis it seems to me there is little scope to break out of the traps we set for ourselves by what we do when we do what we do!

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