Colander Testimony On Risks Modeling

Last September, the Committee on Science and Technology's Subcommittee on Investigations and Oversight, a subcommittee of the United States House of Representatives heard testimony on the risks of financial modeling. I looked at David Colander's testimony.

Colander advocates modeling economies as complex dynamical systems. He thinks economists should be aware of the limitations of models. Macroeconomists, in settling on the Dynamic Stochastic General Equilibrium (DSGE) model, failed to consider a wide range of models. The assumptions of the DSGE model do not fit the real world. (In objecting to the use of the "assumption" of the existence of a representative agent, I am on the side of such economists as Alan Kirman and Frank Hahn & Robert Solow.)

Colander discusses how mainstream economists are indoctrinated. Colander recommends that peer review for grants from the National Science Foundation for economics research include, "for example, physicists, mathematician[s], statisticans, and even business and govermental representatives".

This bit about the NSF reminds me of a story Paul Davidson tells:

"In 1980 I applied for a grant from the National Science Foundation to write International Money and the Real World... One of the [insider peer reviewers] had the most telling observation of them all. He said something like, 'It is true that Davidson has a very good track record and surprisingly good publications, but he marches to a different drummer. If he's marching to a different drummer, if his music is different, then he ought to get his own money and not use ours.'" -- Paul Davidson in J. E. King, Conversations with Post Keynesians (1995)

Davidson did not get the grant.