Hayek made like this arguments against modeling efforts like “tradition two” for 50 years:
I think we have two kinds of modeling traditions. First there is the classic tradition. I was educated at MIT. I was a research assistant to Franco Modigliani, Nobel laureate, and the director of the project on the large-scale model that was used at the time at the Federal Reserve Board. This is the beginning of modern macro-econometric model building. That’s the kind of models that I would use, the kind of models that folks at the Board use.
There’s also another tradition that began to build up in the late seventies to early eighties — the real business cycle or neoclassical models. It’s what’s taught in graduate schools. It’s the only kind of paper that can be published in journals. It is called “modern macroeconomics.”
The question is, what’s it good for? Well, it’s good for getting articles published in journals. It’s a good way to apply very sophisticated computational skills. But the question is, do those models have anything to do with reality? Models are always a caricature—but is this a caricature that’s so silly that you wouldn’t want to get close to it if you were a policymaker?
My views would be considered outrageous in the academic community, but I feel very strongly about them. Those models are a diversion. They haven’t been helpful at all at understanding anything that would be relevant to a monetary policymaker or fiscal policymaker. So we’d better come back to, and begin with as our base, these classic macro-econometric models. We don’t need a revolution. We know the basic stories of optimizing behavior and consumers and businesses that are embedded in these models. We need to go back to the founding fathers, appreciate how smart they were, and build on that.
The economics profession still has a tremendous amount to learn from Hayek … Bruce Caldwell in the 1980s suggested that every decade academic economics catches up just a bit on where Hayek was 30, 40, 50 years ago. Caldwell could say the same today and put the nail on the head just as squarely as he did when big hair bands where all the rage.
Footnote — the deep irony is that Hayek’s work was part of the inspiration behind the creation of “tradition two”.