The case for and against economic modelling

Development, Geography, and Economic Theory, Paul Krugman, 1995

I have always had a problem with economics' obsession with mathematical modelling. Part of the blame probably lies with my first macro teacher who began the semester by proclaiming that the world could be described in 3 equations, and that performing calculus on these equations would eventually explain "everything". (I'll take "42" over that any day.)

Now, I wish that I had come across Krugman's book much earlier. Finally, an explanation of the strengths and weaknesses of mathematical modelling and an honest look at the ways modelling can limit economists' perspective.

Essentially, Krugman traces the history of high development theory and spatial economics. In the early 20th century, there were important theories in both fields. However, they were neglected later because mathematical modelling techniques that could deal with problems of increasing returns and market structure (as opposed to assuming perfect competition) weren't available. As mathematical standards became more rigorous, economists dropped development and spatial economics for lack of instruments to describe them and still be taken seriously.

Krugman still defends the use of mathematical models - for the rigourous logic they impose and for their ability to explain otherwise obscured aspects of economics, even though important fields are sometimes neglected simply because the mathematics to deal with them aren't available.