I don't think we should be so quick to dismiss Adam Smith's insights and the miracle of the invisible hand. Many of you might be familiar with the famous essay "I, Pencil" and John Stossel has a wonderful clip entitled "Rinkonomics" to show how truly miraculous self-interest guided by the invisible hand is (see http://www.youtube.com/watch?v=EVHw_U1v3HI ). I agree that, for example, the perfect competition model is not reality. In fact, I think this model is dangerous because antitrust activitists who view competition as static and not dynamic, will use this model as justification for government intervention. Frank writes on page 28, "Another economist speculated that many of our colleagues fear that taking context seriously might signal a lack of rigor. After all, many economists take considerable pride in their ability to formalize their theories mathematically..." I definitely agree that what passes for economics is just fancy math. Economists who are "serious scientists" believe mathematical rigor is necessary for economic analysis. I wonder if Adam Smith or von Mises would receive a Ph.D. today for their "verbal economics"(read, "not really serious economics")? Moreover, I think too many economists, in the name of "science," are afraid to inject normative analysis. But we forget economics used to considered a "moral science." Finally, I am sympathetic to NOT depending on fancy, technical models of human behavior as reality. Any skilled mathematician can make the agents in a model do whatever he or she wants.
Frank loses me, however, when it comes to his point that people spend their money in a wasteful fashion. What is "wasteful" in the eyes of Frank might not be from my perspective. I understand his individual v. group thinking and absolute v. relative point, but I definitely do not want the government fashioning policy to get me to "spend correctly."
Some links I encourage you to look at: