Just caught myself off-guard and spewed on economic modelling at P3. Accidental blog entry!
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"Does the absence of a workable model refute a hypothesis?" As usual, Krugman's my favourite on this. Particularly from section 'the evolution of ignorance' where he compares theory-making to early map-making. Early maps were more report-based but, as they slowly became filled in, that heuristic knowledge was lost.

"There was an extended period in which improved technique actually led to some loss in knowledge. Between the 1940s and the 1970s something similar happened to economics. A rise in the standards of rigor and logic led to a much improved level of understanding of some things, but also led for a time to an unwillingness to confront those areas the new technical rigor could not yet reach. Areas of inquiry that had been filled in, however imperfectly, became blanks. Only gradually, over an extended period, did these dark regions get re-explored."

Krugman got his Nobel prize for his work on geographical economics (the 'new economic geography'). Here he is (pdf) reflecting on that. His express purpose in creating his 'simple' core-periphery model was to show economists that geography mattered (as well as that you didn't need comparative advantage to make it work, so some places could become the core through endogenous forces alone). But the bait he used to lure neoclassical economists out of their dimensionless 'wonderland' was a model able to preserve general equilibrium.

I'm getting to a point: actually, what Krugman showed with that model had been known empirically for a long time: it's all about cumulative causation, and the first theorist to apply it to trade, I think, was Myrdal. Plenty of others (including Jane Jacobs) noticed the basic core-periphery dynamic. So - had people like Mydral or Jacobs actually created workable models? Did Myrdal's lack of general equilibrium make his weaker? Krugman probably thinks so - he's very big on building models as part of the thought process.

I'm not so sure, given everything that had to be sacrificed to build his core-periphery model. Krugman cautioned policy-makers that it was only a toy model, but it still went on to become the basis for a World Bank report, and to get its tendrils into all sorts of other policy areas. There's a recent case study of the birth of a theory and it's being let loose in the wild that hasn't been written yet.

But anyway, to your question. Hypothesis: some cities or regions can become stronger simply by being slightly ahead in some tiny way, and cumulative causation can do the rest. Or: the history of the world's spatial economy would not turn out the same if you ran it again; it's not entirely physically determined. Did we need Krugman's model to tell us that? Was the idea refuted by a lack of model prior to Krugman making one? Actually, neoclassical economists would have said yes - hence Krugman wanting to show them the error of their ways in the only way they understood - a general equilibrium model. The rest of us, hopefully, don't suffer so much from an institutionalised streetlight effect. But if a model is descriptive but deeply empirical, is it still a model?

Which relates to a second point: you make the comparison to climate skeptics, and the piece you link to does something that has a parallel to the climate skeptic approach. Economics-wise at least, I've spent a few years learning not to do it: emperor-is-stark-naked arguments. Five or six years ago I was going round being just as gob-smacked by the obvious stupidity of Milton Friedman claiming that people can be treated 'as if' they are utility-maximising agents. It actually turned out that 99.9% of people making that point hadn't read what Friedman had said, taking it completely out of context. Sound familiar? Here's the Friedman piece to read (pdf again): plenty to be critical about, but it's good stuff.

As a comparison, physicists can treat collections of atoms 'as if' they can be described using heat, pressure and volume. They're even comfortable knowing that's not the whole story; it's just a very good working description at the level it works at and doesn't mean kinetics isn't important. Here's Feynman nailing that perfectly: 'When you explain a 'why', you have to be in some framework that you allow something to be true. Otherwise you are perpetually asking why.'

Friedman was also very big on Marshall's approach to using theory: he believed Marshall 'took the world as it is; he sought to construct an 'engine' to analyse it, not a photographic reproduction of it' (Friedman 1953a p.35). Walras - who Schlefer pins the whole of economics on - in comparison, built what Blaug calls a 'a peculiar vision of a sort of 'realistic utopia' ' (Blaug 1997 p.569). Here's Brad DeLong talking about that point.

So I don't like Schlefer's piece because it seems sensationalist and one-sided, it doesn't cover any recent economic developments modelling self-organisation (e.g. the entire of agent-based economics) and it's doing what climate skeptics do to climate scientists. On his basic point - 'there is no invisible hand'. I'd reframe it by asking, does he mean one of the following: 'if general equilibrium is economists' gas law, describing the macro stability of the economy, then it lacks the equivalent of kinetics'. Or is he saying, no self-organising feedback mechanisms - i.e. that can work through human actions without purposive central oversight - exist in the economy? Or, feeback mechanisms exist but no current model can help us understand them? (A nice overview of the direction that modelling self-organisation in the economy, minus 'assume an equilibrium has been reached' assumptions: the origin of wealth by Beinhocker.)

None of that massive rant is to say there aren't serious issues in economics, but actually I'd be more worried about the stuff Krugman's been cataloguing recently: macro economics has about as solid a basis in empirical fact as you could hope for, but our global political structures, of course, don't have to listen to that. They can pick n mix economic theory to suit. Of course, if large swathes of our political structures are institutionally capable of ignoring actual physics, that shouldn't come as a surprise.