Economists are infamous for using the ceteris paribus assumption when formulating predictions on economic movement. While this holding all other things constant can be useful in examining particular sources of economic change, it can also be a downfall and lead to partial equilibrium thinking where one assumes a certain outcome based on all other things constant when in reality those other things may not truly be constant. While the assumption can be effective in the short term, it can be damaging in the long term if it fails to adjust as expected. Instead of investing more research into the reason behind the failure though, it seems that the continuous claim that advanced economies will not change over time is held instead.
In a recent article by the Economist, they call out Economists for ignoring many institutions – “organizations or patterns of behavior built by societies to help solve social or economic problems which the law or private markets cannot fully address” – more specifically macro-institutions, that which they have insufficient knowledge of. The article specifically talks about the much debated effects and benefits of fiscal policy, but probes why economists don’t ask more questions that concern the short term and long term effects of the policy implementation rather than the actual logistics of the multiplier and policy itself.
So which is it, are economists more concerned with molding current models to fit the modern economy, or should they be expending more effort into figuring out how macro-institutions function and applying that knowledge when accounting for economic movement?