Mainstream Economics' Flight from Complexity

By the late 1800s, Walras' mathematical model of a market system and Marshall's detailed description of individual markets captured the thought processes of most economists, and since then the quest for mathematical precision and the emphasis on mechanics over realism have further narrowed the scope of economic analysis. This paper examines several specific cases where overly simplistic and unrealistic models dominate despite evidence that the real world is more complex and fundamentally different from what the models suggest. For example, macroeconomists simplify their analysis by requiring mathematically tractable microfoundations of macroeconomic outcomes. Econometric practice has shifted toward single equation estimation models and away from systems of equations, often arbitrarily using instrumental variables to isolate simple relationships from systemic influences. Even economic growth theory uses static aggregate equilibrium models to explain inherently complex dynamic relationships. Among the probable causes of mainstream economics' retreat from real world complexity is the power of culture, which pushes economists to close ranks around unrealistic paradigms. These tendencies are reinforced by the active urging of wealthy interests who protect their privilege in the status quo of monopoly capitalism. The paper concludes with a call for heterodox economists to actively push our field out of its unrealistic and unproductive methodological box by undertaking all economic analysis from a holistic perspective and clearly positioning economic discussions and issues in the interconnected economic/social/natural spheres of human existence. In short, heterodox economists must undertake the difficult task of pushing our profession to respect and appreciate complexity.