It is a well known fact. Economists like doing it with models. But they often do it with wrong or irrelevant models – one would be attempted to say. Are simple economics models always wrong anyway? Well, not really. While models in economics are often an oversimplification of the reality (but look, in a way, that is what they are meant to be), they can still provide some useful insights.


Provided that one does modelling not to veil the reality ‘out there’, but to engage critically with it. My favourite example is the simplest macroeconomic dynamic model, the Harrod-Domar model. The aim of the original Harrod-Domar model was not to provide policy-makers with a simple recipe for economic growth (that sounds roughly like this: the reason you do not grow is that you do not save and invest enough! – it sounds familiar, doesn’t it?). On the contrary, it was meant to show us why a balanced economic growth is very unlikely to occur under a laissez-faire regime. In fact, a stable economic growth can be only guaranteed by a sophisticated institutional structure, keeping market forces under control. And be aware that this can’t work forever anyway.

That is the topic of my lecture of ‘Understanding the global economy’ this coming Thursday. Here is the preliminary draft of my lecture slides. Enjoy it.

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