Regrettably, Sumitra, I was not as clear as I could have been. 
Nevertheless, included in my email was the statement: "Not new models 
but theorems about how individuals are likely to act in the presence of 
various market conditions and market intervention is [are] needed."

I did not say and did not mean to say that ONLY the effects of 
government intervention on economic calculation need to be studied. I 
agree fully that errors under the condition of the absence of 
intervention also need to be studied. And, before that, one needs to 
make it clear what the absence of intervention means. In any case, the 
focus should be on individuals' decision and errors. Smith had a good 
reason for writing about the invisible hand. But if people make errors, 
they may harm others; even in those cases where, if they had made the 
correct decisions, others would have benefited.

Regarding the cause of the crisis, my statement referred to errors, not 
to government intervention as the cause. The question is how to best 
study why people make errors. I would put model-building, as most people 
understand the term, at the bottom of my list of methods. And I would 
welcome a statement by any list member about how the term model could be 
employed to help in the study of errors under the conditions of 
non-intervention and under the various interventions that might be relevant.

Regarding the role of errors in the global financial crises, you might 
be interested in the following.

Gunning, J. Patrick, “Incentive Divergence and the Global Financial 
Crisis.” In Steven Kates (ed.) Macroeconomic Theory and Its Failings: 
Alternative Perspectives on the Global Financial Crisis. Northhampton, 
MA: 2010.

I will send a draft of the article on request.


On 4/11/2011 6:59 PM, Sumitra Shah wrote:
> Roy Weintraub has a legitimate reason to find it remarkable that some of his fellow list members may be confused about the subjcet of economic models. For a lively discussion about models and some other subjects, the videos posted by Pedro Garcia Duarte of the mini-symposium held in São Paulo, Brazil last summer, are very interesting. I am sure they are in the list archives.
> But what I found remarkable is just how confusing economics itself can be. Consensus is hard to come by. When Pat Gunning says in his comments about the financial crisis:
>
> "What needs to be studied is the effect of government intervention on what Mises and Hayek called economic calculation --" I am struck by his conviction/presumption that government intervention is the main or sole cause of this financial meltdown. An expansion of the monetary base certainly played a role, but many prominent economists have also blamed deregulation of the financial sector in the 1990s for making it possible to wreck havoc on the economy. The sophisticated tools and mathematically arcane techniques used by the "whiz kids" on wall street surely played a part because they were exempt from any meaningful scrutiny. Behavioral assumptions will help tell us how incentives work in a particular case, but making such behavior opaque is certainly possible only if it is allowed to be so. Efficient markets and markets as ultimate solution have their problems in the messy real world.
>
> Sumitra Shah
> ________________________________________
> From: Societies for the History of Economics [[log in to unmask]] On Behalf Of E. Roy Weintraub [[log in to unmask]]
> Sent: Monday, April 11, 2011 2:04 PM
> To: [log in to unmask]
> Subject: Re: [SHOE] SHOE: DeLong on Econ Ed
>
> On Mon, Apr 11, 2011 at 1:06 PM, Pat Gunning<[log in to unmask]>  wrote:
>> What I find remarkable about the DeLong's comment that Humberto posted is
>> his implicit view that students should learn MODELS. The real lesson of
>> recent events, it seems to me, is that in spite of 50 years of teaching
>> models; there is no model that matches the reality that was experienced.
>>
> What I find remarkable is that Pat Gunning, and perhaps some others on
> this list, have a view of "models" that is hopelessly confused and at
> least a quarter century out of date.
>
> For a short reading guide, Pat and others might consult:
>
>
> Models as Mediators: Perspectives on Natural and Social Science by
> Mary Morgan and Margaret Morrison (eds.) 1999
> "Models" (2008) by Mary S. Morgan in The New Palgrave Dictionary of
> Economics, 2nd edition, eds: S.N. Durlauf and L.E. Blume (Palgrave
> Macmillan), online.
> Models: The Third Dimension of Science by de Chadarevian and Hopwood (2004)
> Science Without Laws: Model Systems, Cases, and Exemplary Narratives
> by Creager, Lunbeck and Wise (eds.) 2007
>
> Since Morgan is a past President of HES, one would have thought that
> her work was fully known by all in HES, but I guess not.
>
> --
> E. Roy Weintraub
> Professor of Economics
> Fellow, Center for the History of Political Economy
> Duke University
> www.econ.duke.edu/~erw/erw.homepage.html
>
>

-- 
Pat Gunning
Professor of Economics
Melbourne, Florida
http://www.nomadpress.com/gunning/welcome.htm