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In this episode of “Where is the General Theory of the 21st Century?”, we talk to Professor Dani Rodrik, the Ford Foundation Professor of International Political Economy at Harvard’s John F. Kennedy School of Government, and leading economist on research covers globalization, economic growth and development, and political economy.

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–On Economics Rules–

Q: EconReporter R: Dani Rodrik

Q: I love your book “Economics Rules”. May I ask why would you write a book about economics methodology? What is the motivation?

R: I am not a methodologist, and I certainly have only a casual knowledge of philosophy of science. However, I felt that there was a need to explain how good economics work is done to non-economists and, perhaps, paradoxically, to economists.

I had two audiences, both economists, and non-economist. I hope to present a picture of economics to non-economists so that they could, overcome some of the usual misconceptions of what economics is about. But I also hope to reach economists and convince them that the way that economics progress and the way that “good economics” is done are actually different. In other words, the actual practice is different from the apparent philosophy that they have about what kind of science economics is.

So, I wanted to explain to economists that part of the reason they cannot get their points across in the interdisciplinary environment is that they have the wrong view of what economics methodology is really like.

Q: In my opinion, one of the most important insights of your book is how to differentiate “model” from “theory.” Can you briefly tell our readers what the differences between the two are?

R: Models are the building blocks of economics, and I think they are critical in building theories. I try to stay away from the notion of “theory” in much of the book and talk about models. Then, there is one chapter in particular where I talked about what a theory is.
There are at least three different senses in which we use the term “theory” in economics and they all related to models in one way or another. But I think they are different.
A “grand theory” of how a capitalist system works, or how a market economy works, or to explain value and distribution, or to explain business cycle; those kinds of grand theories, I think, have generally been unsuccessful.

What we are much better at are conditional explanations. That is what models are – to build a causal explanation of what the impact of X, Y or Z would be on some variables of interest. Those tend to be more conditional and context-specific explanatory theories.

There is also an intermediate domain where we also apply the word “theory.” It is when we are trying to explain something after the fact. What did we have the Global Financial Crisis? Why is the Euro Zone unstable? Why has inequality risen in the world? These kinds of “theories” are really ways of combining different models that we already have to explain an outcome in a given historical period, or a given region of the world.

So, I think there are at least three different kinds of “theories”: the grand theory that is the universal and timeless theory; the specific, conditional causal explanations; and, the explanations of some particular historical episodes.

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