Economic Methodology

The absence of norms plays an essential role in all of the five neutralities. Their absence from everyday economics is simply due to the nature of standard economics methodology. However, the current models are only effective until people begin to lose utility because they (or others) are not acting in the way that they should. The current methodological methods are biased against their use, currently.

People use their intuitions regarding norms of how consumers, investors, and wage and price setters think they should behave. This reasoning is likely to be correct because, by their nature, norms are likely to be known and accepted by the whole community. They are known both by people that abide by them and by people that observe them. According to the neutralities, Keynesians got it wrong: Consumption should have no dependence on current income; investment should be independent of current cash flow; wages and prices should not be dependent on nominal considerations. However, the Keynesians were ultimately got it right because they used norms that were widely understood.

Each person or entity behaves in a specific way for a reason, and Akerlof's main argument is that the reasons need to be taken into account, this is allowed by the five neutralities. We have shown the ways that economic variables can be and are influenced by norms.

The Missing Motivations in Macroeconomics