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The Individual Failings of Economics

In recent decades, economics has gone from defining itself as a set of questions to defining itself as a set of methods, all based on individuals making decisions. By doing so, it has undermined its own ability to make progress.

CAMBRIDGE – Economics could advance enormously if it relaxed one of its most precious assumptions: methodological individualism, or the idea that any explanation needs to be related to individuals making sensible decisions. This requirement puts the discipline at a huge disadvantage vis-à-vis the natural sciences, because it prevents progress in understanding the relationship between the micro and the macro.

Physics explains all behavior by assuming some fundamental laws at the (very) micro level. Quarks give rise to protons and neutrons, which, together with electrons, generate atoms, in turn giving rise to molecules and macro-molecules such as DNA, genes, and proteins. These produce cells, multicellular beings, and whole ecosystems that live on a planet that rotates around the sun. In theory, one should be able to explain all of this by going back to the fundamental laws of particle physics. In practice, this is not only impossible but also unnecessary, facilitating progress.

We know about all of these levels because scientists looked into them and described them in as much detail as possible, enabling other scientists to explain them in terms of lower-level determinants. Each layer can somehow be related to the layer below, all the way back to quarks and electrons.

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