This commentary appeared on Financial Times on August 31, 2011.
In his article "A realm dismal in its rituals of rigour" (Analysis, August 26), John Kay provides a useful critique of economic modelling.
A model is like a map. It provides a schematic representation of the path from point A to point B. If one follows a map, but finds an overnight storm has felled a tree that blocks the path, one just takes a detour until the path can be restored or lays a new road if the damage is irreparable.
Models are metaphors, and all of them fail in certain situations, but there is much to be learnt from why and how exactly they fail. The best of economists — and you can include the originators of the dynamic stochastic general equilibrium paradigm among them — readily see the fallen tree. It appears one cannot fault them for not foreseeing all the ways in which their paradigm could have run into trouble, just as one cannot fault the meteorologist for not seeing which particular tree would fall in a perfect storm, or the epidemiologist for not seeing the Aids virus would jump from monkeys to human beings.