Review of
Economics Rules: The Rights and Wrongs of the Dismal Science
Description of the book
The book was published in 2015 by W.W. Norton & Company and contains six chapters with an
introduction and an epilogue.
Dani Rodrik is the Ford Foundation Professor of International Political Economy at Harvard's
John F. Kennedy School of Government. In addition to his academic work, he has authored “The
Globalization Paradox” and several other books.
Book Chapters
Introduction: The Use and Misuse of Economic Ideas
What Models Do
The Science of Economic Modeling
Navigating among Models
Models and Theories
When Economists Go Wrong
Economics and Its Critics
Epilogue: The Twenty Commandments
Introduction
Economics Rules is authored to show the superiority of economics over other social
sciences due to the extensive use of models in the field. This book seems more of a self-
critical book in which the author tries to point out the critical areas where the
practitioners of economics discipline have gone wrong in understanding the true
problems confronting the world. The author also highlights some of the criticisms hurled
at economics discipline by non-economists and tries to defend the subject by suggesting
alternative ways to avert any calamities in future. Rodrik argues that misinformation
prevails about economics discipline resulting in the criticisms like dealing with complex
social issues using simplified mathematical frameworks. He regards economists’
themselves responsible for the blame on the discipline by outsiders. According to him
economists become content on a single model developed for a particular context, even if
there exist better alternative models and resultantly the single model fails to explain the
issue. He justifies the role of economics as a science and suggests that economics can
answer social issues better than any other social science discipline because of the
empiricism involved in economics field.
In his detailed analysis of the successes and failures of economics discipline, Rodrik
draws essential conclusions on how economists went wrong in dealing with certain
events like Great Recession of 2007-2008. The substance of this book surrounds on the
idea of viewing economics as a discipline which renders multiple contextual models
instead of universal theories. It is meant to rectify the errors committed in miscalculating
the specific models in certain situations as well as giving a message to economists to
improve upon their practice of the subject. This idea basically explains the fact about the
failure of economics to avoid certain crisis in recent years.
Chapter one underscores the significance of models in economics and justifies the
simplification of models through assumption as a way of differentiating casual
mechanism operating in the world. It is argued that assumptions are meant to simplify the
model and assumptions become problematic only when the ‘critical assumptions’ are
unrealistic. By critical assumption he means the assumption which if modified in a more
realistic direction would produce a clear difference in the conclusion of the model. Three
model examples namely, supply-demand, prisoners’ dilemma, and coordination models
are presented to help understand how assumptions simplify the workings of the economic
transactions. Chapter two starts with the assertion of “models make economics a
science”. Accumulation of models help develop the stock of knowledge on the subject
and generate useful insights on specific issues when intuition fails us. Selection of models
suited to specific circumstances is one of the challenging and vital task in economics
research.
Chapter three focuses on how the relevant models for relevant situations are opted is an
artful act which comes with practice and experience. Rodrik acknowledges that models
never paint exact picture of reality that exists, rather an appropriate model attempts to
show the main causal relationship at work. Economists must be guarded in policy
prescriptions especially in determining the fact that the critical assumptions are close to
reality which could help in producing better results from the model. Chapter four
discusses the distinction between theory and model and explains the strength of economic
theories in demystifying the confusions surrounding economic phenomena. Further, it is
elaborated how theories developed for the purpose of interpreting grand economic issues
fail to account for specific events and circumstances eventually become unsuccessful in
achieving the desired results. In chapter five the author describes the failure of economics
discipline. He claims how economists mistook the events that led to the financial crisis of
2007-2008. In the final chapter six the focus of discussion is on the criticisms made on
economists and on their discipline. However, author has defended the field with his
arguments while differentiating between what is practiced by economists and what the
discipline says and guides.
Rodrik’s whole discussion surrounds on the role of models in economics, the selection of
appropriate models suited for specific circumstances, and defining economics as a
science thanks to models. He considers models as experiments which seems a less
convincing resemblance. Since experiments are means to validate or invalidate the
implications of models hence, they are not models themselves. Moreover, the discussion
of the book does not shed much light on econometrics- the discipline whose contribution
makes economics a science.
He claims that economics is like a library which builds on the collection of models where
new models are developed and refuted ones are not discarded. Viewed in this way the
implications of falsified models create lots of problems for the discipline. Given this
argument we cannot accept the claim of economics as a science it can only be regarded as
an art. The argument of the author suggests that economics can still remain a science
although it does not follow the standard scientific methods.
For interested readers of economics, the fascinating part of the discussion is where the
author stresses the plurality of the models. Often it is observed that the focus of the
practitioners of economics subject to understand how economy functions rests on a single
model. Rodrik recommends it is better to navigate among different models to address
contextual issues instead of depending on a single model with no proper solution. He
writes several examples describing where the economists have gone wrong and where
they succeeded in terms of the plurality of models. It is obvious that the economic models
are not that much precise as the author believes, nevertheless the rapid development of
the field and its models in recent decades cannot be objected.
Lamenting on the critics and their behavior towards the field, Rodrik argues that they do
not know about how assumptions of a model work and they do not have know-how about
the nature of economics. He asserts that economics is a collection of models which have a
range of policy implications. Failing to account for the diversity that models have is a
problem concerned with the practitioners and not the field itself. Apart from this, he
admits that there is much more disagreement among economists on several issues than
what common people see on the surface. Rodrik seems to believe that there exists a
misguided consensus formation within the field and this has to do with the sociology and
psychology of the field. According to him which leads some researchers of the subject to
follow the fashion adopted by many other practitioners.
Social phenomena surrounding our environment are complex and difficult to discern but
the simplicity of economic models and their assumptions to deal with those complexities
seem implausible. However, the author claims that real world phenomena are complex
because of the interplay of several causal mechanisms. Economic models with the help of
assumptions are designed to isolate the important causal relationships between different
variables and hence become able to diagnose the real issue as well as to address it
accordingly. He further clarifies the simplicity of assumptions by adding that only the
critical assumptions of the model need to be proximate to reality. By critical assumption
he means those assumptions which if adjusted towards reality results in significant
changes in the final outcome of the model. The discrimination between critical and non-
critical assumptions creates a confusion about the causal mechanisms which are at play in
the real world. Based on this assertion, there exists a contradiction between what Rodrik
calls the simplicity of economic models in terms of causal relationship and the claim of
critical assumptions to be true. Because it could be possible that the assumptions, we
regarded as non-critical and unrealistic, are those which are isolating assumptions
meaning that we need to be worried about those.
Conclusion
The book is a display of expressing economics as a superior discipline among social
sciences, as its name suggests “Economics Rules” despite involving a critical analysis on
the discipline. The superiority of economics, asserts the author, is justified by the fact that
economic and social issues are dealt with more precision and clarity with the help of
mathematical consistency of economic models. It is argued that economics is more
pragmatic than other social sciences, as economists employ more practical methods than
other social scientists. Author of the book emphasizes the point that a multitude of
models exist for different circumstances, and a true practitioner of the field utilizes
diverse models in their appropriate contexts for desired outcome. He believes that many
times economists have failed in their attempt to avoid crisis scenarios because of the fact
that they contended on a single model whereas different economic situations call for
different models application. Although Rodrik has made a critical analysis of the
discipline, yet it seems a guarded one which results in other several contradictions in his
statement. For instance, the claim of critical assumptions being true and the isolating
assumptions for model simplicity portrays a tension between these two claims. He has
addressed many of the critics of economics by stating that they had misunderstood the
nature of economics and the purpose of assumptions economists employ in model
building.
