Microfoundations: The Long Con

I wrote this as a comment response to Ryan Avent’s great post on his Substack blog. (You should subscribe. I did.) I thought I’d share it with my gentle readers here. Lightly edited, including one additional paragraph at the end.


Hi Ryan. Great piece, thanks. A few responses:

1. “authors of published papers are not always required to make available the data underlying their work”

Not just the data! They need to provide the actual analytic mechanism, software, that they use for the calculations. A replicator cannot be expected to re-create it perfectly based on verbal explanations or even the algebraic formulas in their papers. Detailed implementation issues always arise, and replicators can look directly at how the originators dealt with them — the precise, coded derivations of different measures. Plus errors, of course, Reinhart/Rogoff being the obvious example. Gimme the spreadsheet. Or stata code *and* the spreadsheets, as in Piketty & Co.’s DINAs, whatever.

2. This all cuts to the demand for “microfoundations.” In most cynical terms, the synonym for that is “post-facto armchair psychological/behavioral justifications for model assumptions about human reaction functions.” Which generally derive their rhetorical weight from the degree to which they seem “obvious.” Making a bit of a leap here, in practice where confused notions of individual vs collective “saving” rule, this means that assumptions which seem obvious to minds steeped in puritanical Calvinism tend to dominate economic theories and models. (Even Marx had a very heavy dose; Minsky even more so. And etc.) Vs models focusing on the observed, emergent behavior of different groups, classes, etc., whatever their microcauses might be.

So (entering the Office of Self-Aggrandizement here), I’d like to bruit the following model as one that completely eschews and refuses to do that post-facto rationalization and justification veiled as microfoundations.


Even though what seems to be an ironclad “obvious” explanation is lying on the ground waiting to be picked up: “The bottom 20% turns over its wealth in annual spending six or seven times faster than the top 20% because duh, declining marginal utility.”

Just: that’s what the top/bottom 20% groups *do.*

It’s like modeling the fluid dynamics of water in a whirlpool, or passing through a venturi. Sure, understanding the H20 molecule interactions provides a deep and rich understanding of water’s viscosity. But for the fluid model you just measure the viscosity and Bob’s your uncle.

Fully cynical view: The whole microfoundations business was/is basically a very clever dodge to require puritanical calvinism in all macroeconomic analysis. Blowing smoke and emitting chaff to to distract from and discredit any models in which group norms, cooperation, emergent properties, etc. trump simplistic additive (and “obvious”) steely-eyed self interest.

All of which has resulted in a massive and dominant intellectual infrastructure justifying insanely concentrated wealth, based on the false, moralized labeling and rhetoric of “patient savers.” (I’m looking at you, Paul Krugman.) Not just on the right, either; significant aspects of this leak into left/heterodox economics as well.

Thanks for listening… /rant