In Praise of Generalized Non-Parametric Deconvolution

by Daniel on June 12, 2009

Larry Elliott (the Guardian’s economics editor) is in my view right to say that a lot of modern macroeconomics has gone off the rails pretty badly and that most general equilibrium models are a tragic waste of time. But I think he (and most other similar critics of excessive maths in economics) really badly misidentifies the nature of the problem, and his choice of an example of a worthless piece of mathematical formalism is quite unfortunate and unfair. Let’s see if I can explain what “Generalised non-parametric deconvolution with an application to earnings dynamics” is, and why someone might care about it.

The most important thing to note is that the paper that Larry lampoons as an example of mathematical modelling divorced from the real world, isn’t actually an economic model at all. It’s a contribution to the statistical toolkit, a method for helping you analyse the data. It’s probably best understood by looking at the individual words.

“Deconvolution”. If you have two random variables, and you add them together, then the probability distribution of the sum is the convolution of the distributions of the two variables. “Deconvolution”, then, is the problem of extracting the individual distributions when all you have got is the sum. In the context of this paper, the “application to earnings dynamics” means that some changes to a person’s earnings are transitory (overtime, say), and some are permanent or nearly so (promotion or redundancy), and that it’s often interesting to try to take a time series of wages and separate it into transitory and permanent components.

“Non-parametric”. The easy way to do deconvolution is to make simplifying assumptions about the kind of probability distribution that your two variables have. For example, if you assume that your two variables are normally distributed, then all you have to think about is the mean and variance of each distribution – four parameters in all. It’s then pretty easy to write a computer program that just iterates through possible combinations of those four parameters, until you get the combination that has the best fit to your data.

However, the general practice of assuming that everything is normally distributed has gone right out of fashion in economics, in large part because of the crisis and in smaller, but still highly significant part because of Nassim Nicholas Taleb’s book “The Black Swan”. If you are going to try and estimate without making any up front assumptions about the shape of your distributions, then that’s non-parametric statistics.

“Generalised”. In the econometrics literature, this almost always means, as it does in this case, that the author has provided a solution which works for problems witth lots of variables. It’s often very easy to find a method that works for cases of a single target and a single explanatory variable, but for practical use, you need one that can be generalised.

So, generalised non-parametric deconvolution is a method of separating out the different components of an aggregate series, without making assumptions about their probability distribution and when there might be lots of hidden factors. It isn’t, frankly, a massive work of economics that deserves to win the authors a place on the rostrum next to Keynes and Ricardo, but it is (or at least it appears to me; I haven’t checked the maths) a perfectly sensible and workmanlike contribution to the toolkit for understanding some quite important problems. And the “application to earnings dynamics” shows that it can be put to use. The mathematical section of the paper is as horrific as Larry says, full of Fourier transforms and iterated integrals (although really, did we think that a complicated signal extraction problem like this was going to be easy?). But on page 33 of the working paper version I linked above, after all the maths is done, we get the following perfectly clear piece of academic English:

” Predicting transitory and permanent shocks for the individuals in the sample, we see that frequent job changers face more permanent and transitory earnings shocks than job stayers. This result has important consequences for welfare analysis. Savings and insurance should be very different if the risk of large deviations is much higher than is usually assumed with normal shocks.”

In other words (I said “clear academic English”, not “clear English”), they did indeed find that permanent shocks to earnings are not normally distributed, large permanent shocks are substantially more frequent for people who regularly change jobs than had been estimated under the old methods, and this matters quite a lot (in particular, although they don’t say this in the version I linked, it potentially changes the relative attractiveness of final salary versus defined contribution pension schemes for people who regularly change jobs). This sort of economics hasn’t lost touch with the real world in order to hide in a fantasyland of mathematics – it’s simply taking a grown-up approach to the fact that if you’re going to engage with the real world, then you need to minimise the number of a priori assumptions you’re making, and one consequence of making fewer unrealistic simplifying assumptions is that you’re going to have much more complicated calculations.

The problem with the high priests of mathematical ecnomics was not the fact that they used mathematics – it was that they allowed the ideology to drive the theory. The commitment to general equilibrium and to rational expectations was a founding belief, and all the rest of the modelling had to bend its way around that. Unsurprisingly, when you’ve got to make a model that can incorporate both the observable facts and a couple of key religious doctrines, the mathematics gets pretty complicated; Jesuit astronomers used to find the same kinds of problems. But you can’t blame the maths for that.

It is possible to sensibly argue, as Larry Elliott in fact does, that the whole business of building mathematical models is unworkable whatever the assumptions, and that economists should just go back to “thinking about the macroeconomy”. But even this is actually quite demanding in terms of the amount of mathematical sophistication required. John Maynard Keynes didn’t use many equations in the General Theory, but his theory assumed that there would be a workable system of national accounts to apply it to, and Keynes and Simon Kuznets spent a lot of time and effort creating such a system (and formalising the very concepts of things like GDP). Economists can’t even begin to think about the macroeconomy without reliable statistics to use, and statistical work has to be done by statisticians.

Even as straightforward a quantity as unemployment will often get surprisingly complicated by the time you’ve started to get into the detail of constructing labour force surveys and adjusting for “births and deaths” of new companies, while abstract quantities like “inequality”, or indeed the permanent and temporary components of the variation in earnings, can get horrifically technical. It’s true that a lot of mathematical economics is garbage – personally I tend to believe that nearly anything based on dynamic programming could be chucked out without loss – but the fact is that it’s a quantitative social science, and so it’s always going to be subject that has quite a lot of maths in it.

And quite apart from anything, there’s no shortage of economists who are taking the advice, putting down their sophisticated mathematical models and thinking about the economy, and making the most extraordinary asses of themselves as a result. Paul Krugman and Brad DeLong have been shouting themselves hoarse over the last six months, dealing with professional economists (including plenty of Nobel Laureates) who have been reviving a defunct economic fallacy called the “Treasury View”.

Named after the civil servants who maintained it in the face of Keynes in the 30s, this is the view that deficit spending can’t effect the total level of output because people adjust their private spending to offset the government stimulus. This view is demonstrably, clearly wrong, but you need to use a bit of mathematics to prove it so. The reason why these mathematical models came into use in the first place is that economics is a subject where it’s very easy to get confused, double count and otherwise make statements that are inconsistent with one another, and the requirement to make two sides of an equation balance helps to stop you from doing this.

It all reminds me of that old-fashioned journalistic cottage industry of the 1980s, where one used to take a passage of Derrida or Irigaray out of context, quote it in all of its jargonistic glory, pronounce it gibberish and move on to a fierce dismissal of “postmodernism” as meaningless. In a lot of these cases, the dismissal was warranted, but there was always a worrying feeling that the author’s inability to understand a technical piece in a specialist journal wasn’t actually the gold standard of meaning (or rather, that it was the gold standard – the gold standard was a bad monetary rule and this is a bad way to judge the value of academic disciplines). Just as there were good and bad literary theorists in 1980s France, there are good and bad economists now, and you can’t actually tell the good ones from the bad ones simply by looking at the equations they use.

{ 77 comments }

1

sg 06.12.09 at 6:58 am

I wonder what this Larry chap thinks of epidemiology and biomedical research, then? Don’t let him near the statistical literature on genetics research – and of course, one can only assume that if he thinks signal processing is meaningless garbage he doesn’t open many jpegs on the internet (the poor chap – he’s forced to resort to buying his porn in magazines!)

It’s nice to see you segue from a defense of generalised non-parametric deconvolution to a defense of post-modernism. Very swish.

2

Daniel 06.12.09 at 7:12 am

I’ll put in a note saying who Larry Elliott is – this piece made more sense when it was a contribution to the Guardian website but unaccountably, they didn’t want it.

3

StevenAttewell 06.12.09 at 7:54 am

“The problem with the high priests of mathematical ecnomics was not the fact that they used mathematics – it was that they allowed the ideology to drive the theory.”

That’s a problem, not the problem. There’s a larger problem of democracy – if economics is to be the most powerful and influential intellectual method for judging public policy, then there has to be an economics that ordinary people can understand, canlearn as amateurs to a reasonable (undergraduate) level of mastery, can debate openly and thoroughly in the media, and vote accordingly. We’ve had in this in the past – you’d be amazed to read the sophisticated economic thought and imagination of the greenbackers or the Farmer’s Alliance, or the Progressives, or the New Deal generation.

But these days, that kind of academics doesn’t really exist – Freakanomics and the like don’t really fill the void, Krugman and DeLong come close, but they tend to be read by a mostly middle-class well-educated population.

Wither the spirit of John Dewey?

4

StevenAttewell 06.12.09 at 7:54 am

Err…whither not wither, although….

5

chrismealy 06.12.09 at 8:04 am

Uh oh, I have a little hobby project that involves dynamic programming. What’s its catch?

6

Chris Edmond 06.12.09 at 8:15 am

Most of DD’s piece is very sensible (am I the only one who saw the title of the paper mocked by Elliott and went, “that sounds cool”?) but this:

“However, the general practice of assuming that everything is normally distributed has gone right out of fashion in economics, in large part because of the crisis and in smaller, but still highly significant part because of Nassim Nicholas Taleb’s book “The Black Swan”. “

is bollocks.

Economics may have been behind other disciplines in making appropriate use of nonparametric statistics, but anyone with a PhD in economics in the last 15 years or so will have heavy exposure to nonparametric tools in their econometrics classes. It certainly isn’t some short run reaction to the crisis or Taleb. Take a look at the literature cited in standard texts like Li and Racine “Nonparametric Econometrics: Theory and Practice” (Princeton, 2006) or Pagan and Ullah “Nonparametric Econometrics” (Cambridge, 1999) if you need evidence.

7

Daniel 06.12.09 at 8:16 am

Nothing wrong with it in principle, but it’s the internal combustion engine of neoclassical econ – makes it much, much too easy to produce stylized models without really thinking about them, and where half of the important parameters are determined by the need to make the model work rather than the economics.

8

Zamfir 06.12.09 at 8:17 am

Steven, that’s a good point, but I am not sure how much it has to do with mathematics, and how much with the relatively large differences between economists when it comes to the issues involved.

In physics, people write books saying “this is how it is, I won’t explain the math, here is a crude analogy using a skate board, if you still don’t get why it is this way, rest assured that it is really true, all physicists agree on it”.

You could do the same in economy up to the skate board, but then it breaks down into three-handedness.

9

Daniel 06.12.09 at 8:17 am

Ahhh here’s my diatribe from days past.

10

Daniel 06.12.09 at 8:22 am

#6 Fashion, Chris, fashion. Nonparametric statistics has been around at the cutting edge for ages (and longer than fifteen years if you count Bayesian methods) but it has only really broken into the mainstream in the last couple of years. This is partly due to the progress of computer technology but partly because it’s become sexy.

After all, we’ve just had a massive crisis which many people blamed on the gaussian copula, which is defiantly a parametric method.

11

Chris Edmond 06.12.09 at 8:48 am

“Nonparametric statistics has been around at the cutting edge for ages (and longer than fifteen years if you count Bayesian methods)”

Certainly longer than 15 years, I was being conservative in my guess. It seems to me that Silverman’s 1986 “Density estimation…” got things really rolling, especially from a descriptive point of view. It’s been a long time since anyone blinked at casual use of a kernel density estimate.

But “it has only really broken into the mainstream in the last couple of years” is still bollocks, unless you define “mainstream” so carefully as to render the term meaningless. If packages like Stata and Matlab have dozens of pre-canned nonparametric estimation tools (and they do), you can be assured it’s been mainstream for years. Those aren’t early adopters.

Copulas etc notwithstanding, there’s a fair amount of nonparametric time series in finance too (google “George Tauchen” for example). But I bet you’re right that these will become *more* popular.

12

Daniel 06.12.09 at 9:09 am

Note that the post actually said “the general practice of assuming that everything is normally distributed has gone right out of fashion” rather than “the general practice of non parametric statistics has come right into fashion”. I don’t think we’re really disagreeing here. If you showed up at, say, the Bank of England or NIESR with a suggestion that their main forecasting model needed to be retooled to use more nonparametric methods, my sense is that you’d get a much better reception today than you would have done two years ago.

If packages like Stata and Matlab have dozens of pre-canned nonparametric estimation tools (and they do), you can be assured it’s been mainstream for years

Would question whether Stata and Matlab are mainstream for macroeconometricians, btw (well, Stata, yes, but I don’t know many economists who use more than a tenth part of its capabilities). If we were talking about nonparametric packaged commands in TSP then maybe. Looking through the abstracts for the current issue of Econometrics Journal, they still seem pretty parametric to me – nonlinear for the most part but definitely based on specific distributions. There’s a reason for this of course – when you go nonparametric, you lose all those useful parameters, which are often the things you are most interested in if you’re doing structural modelling.

13

kevincure 06.12.09 at 9:10 am

The statement about nonparametrics is just ridiculous. The reason it hasn’t been commonly used is simply because, with your average data set and even a very fast computer, you’re not going to be able to compute more than a few independent variables (the “curse of dimensionality” applies here, much as it does to Davies’ hated DP). Further, even nonparametrics involves some assumptions – the bandwidth choice in particular, but also the kernel. That said, semiparametric techniques are quite usable at the moment, usable to the point that I can’t see serious research using parametrics at all a few years from now.

But as noted above, this has nothing to do with Taleb. Pagan/Ullah is a decade old, and any econ grad student sees nonparametric techniques quite heavily.

Finally: in relation to this post, how about some defense of modeling in social science? Economic journalists from Nocera to the FT and Guardian have, over the past year, been making ridiculous claim after ridiculous claim about models missing some part of reality. Well, yeah, that’s the point, isn’t it? Tractability and simplicity are virtues.

14

Hidari 06.12.09 at 9:13 am

Isn’t the real issue here between Rationalism and Empiricism? If you look at the history of Western Science (I include Islamic Science as part of Western Science) then right from the very beginning you have the ‘debate’ between Plato (and followers of Plato) and Aristotle. Plato, of course, following on from Pythagoras, saw mathematics as a mystical methodology that could unlock the metaphysical mysteries of the Universe and thereby uncover Truth (very much with a capital ‘T’) from first principles and via ‘pure’ cogitation. Aristotle, on the other hand, went out and actually looked at the world, and attempted to classify it.

Obviously this ‘debate’ was replayed, albeit using very different terms, in the 17th and 18th centuries. Rationalists believe in ‘abstract’ theorising, logical or mathematical arguments from first principles, and that the philosopher should be in the cave, using his (sic) mental powers of logical analysis to uncover truth: in other words, out of the world. The empiricist, on the other hand, is clearly ‘in the world’, and prioritises empirical data (well duh) but also lived, embodied experience: the body, not the mind.
Western science works at its best when rationalism and empiricism are combined in a kind of dialectic: first we have the great idea, which is then tested by observation and/or experiment which produces more ideas, and so on.

The problems start when the ‘dialectic’ gets unbalanced: that is, when people don’t see this, and prioritise one or the other approach. And in fact many debates in science are actually debates about methodology and what science is for and about, rather than the facts per se. For example, in linguistics, pre-Chomskyan 1920s and 1930s classificatory linguistics was clearly Empiricist, and Chomsky, just as clearly was and is a Rationalist. In a broader and looser sense, behaviourism was empirical (empiricist, that is) and cognitivism was/is rationalist. One might argue that in physics, with its disdain for experiment and its love of ever more complex mathematical modelling, superstring theory is Rationalist. And so on.

The problem with neo-classical economics, surely is that it is Rationalist to the max, dude. The Historical School, on the other hand, was Empiricist: too much so, say many, but perhaps the pendulum has gone too far the other way? Many of us are worried by the extent by which neo-classical assumptions are untested or untestable either by ‘raw’ data or by experiment. And it’s this that makes people like me worried when economists write extremely complex paper dense with maths. No I have no problem with maths per se. The question is not ‘is this true?’ (i.e. in some Platonic manner). The question is: ‘is this real?’. I.e. does this touch base with reality at any point? Is it testable? What data (i.e. real world, statistical data) support it?

Dsquared’s point here: ‘Nothing wrong with it in principle, but it’s the internal combustion engine of neoclassical econ – makes it much, much too easy to produce stylized models without really thinking about them, and where half of the important parameters are determined by the need to make the (mathematical) model work rather than the economics.’ also makes the same point.

That’s not to deny that economists (past) disdain for Bayesian methods and non-parametric stats isn’t a problem as well, of course. But they are hardly alone in that, and the reasons for this are also, arguably, rooted in Pythagorean/Platonic metaphysical assumptions.

15

Chris Edmond 06.12.09 at 9:28 am

“I don’t think we’re really disagreeing here. If you showed up at, say, the Bank of England or NIESR with a suggestion that their main forecasting model needed to be retooled to use more nonparametric methods, my sense is that you’d get a much better reception today than you would have done two years ago.”

It’s truly hilarious that you give *that* example, since nonparametric density approaches to inflation forecasting has been a staple of the Bank of England for yonks. Google “fan chart”.

16

Daniel 06.12.09 at 10:03 am

Mate, I used to help produce that fan chart, and you’re only right in as much as “sitting round a table arguing” is a nonparametric method (which it is, but not in the relevant sense). The Inflation Report has always carried a note explaining that the probabilities concerned aren’t the output of the forecasting model but represent the team’s assessment.

17

Luis Enrique 06.12.09 at 10:41 am

Three cheers D2, that Elliot article made me grind my teeth to dust. That man has not business being economics editor.

[I think you're wrong about most general equilibrium models being a tragic waste of time too, but hey ho]

18

ejh 06.12.09 at 10:52 am

That man has no business being economics editor.

On what basis do you say so? Does it include anything outwith of that article?

19

Luis Enrique 06.12.09 at 11:19 am

ejh

solely on the basis of the bloody stumps that are my molars.

20

ejh 06.12.09 at 11:26 am

Uh huh.

Have you considered sending them to the Guardian and suggesting they send you Elliott’s resignation by return?

21

Chris Edmond 06.12.09 at 11:45 am

“Mate, I used to help produce that fan chart, and you’re only right in as much as “sitting round a table arguing” is a nonparametric method (which it is, but not in the relevant sense).”

OK, got me there. You’re right, at the Bank of England they’re subjective fan charts. What I should have said is that there’s quite a lot of work on nonparametric inflation forecast densities (eg, Tom Sargent’s work comparing Bayesian predictive densities to subjective fan charts) and presumably that some of this informs central bank practice.

22

Daniel 06.12.09 at 12:24 pm

I was actually at the internal seminar when the words “kernel estimator” were first uttered, and it really caused quite the stir. The trouble is though that for a central banking environment they’re always going to be most interested in policy simulation applications, which are (or at least were; I haven’t actually been at the sharp end for years) difficult to do in that framework. While I was there, the big controversy was over vector autoregression – I still have a few pieces of shrapnel lodged in my leg from the Impulse Response Functions Are Not Measures Of Marginal Effect wars.

23

david 06.12.09 at 1:17 pm

“The problem with the high priests of mathematical ecnomics was not the fact that they used mathematics – it was that they allowed the ideology to drive the theory. The commitment to general equilibrium and to rational expectations was a founding belief, and all the rest of the modelling had to bend its way around that.”

Sure, but we shouldn’t underestimate the degree to which the maths made the theory appear real, tough, hard-core, rigorous, better than that soft stuff. I can imagine a billion awful articles on the fetishization of math, but that don’t meant it’s not happening.

24

PGD 06.12.09 at 1:23 pm

It’s pretty funny that someone who wants to reduce the influence of math would try to criticize non-parametric statistics, which are useful exactly because they let the data speak without imposing mathematical assumptions. In fact, it makes me suspect that individual doesn’t know what they’re talking about.

But it’s an opportunity missed, since there is a very real sense in which mathematical modeling is enormously too important in economic theory. There is a set of tractability assumptions that have been mistaken for realities about the world, and a mutually reinforcing feedback loop between those assumptions and nutty market ideology.

25

Gene O'Grady 06.12.09 at 1:59 pm

My knowledge of the chronology of early modern science is not what it might be, but I don’t believe that the astronomers who did the complicated mathematical models that tried to make the Ptolemaic system work were Jesuits.

26

Kieran Healy 06.12.09 at 3:50 pm

Political Scientists and Sociologists use nonparametric methods all the time, so clearly they cannot be hard to learn.

27

Doug K 06.12.09 at 4:37 pm

Indeed the Jesuit astronomers appear to have been on the side of the angels..

http://galileoandeinstein.physics.virginia.edu/lectures/gal_life.htm
“In 1611, Galileo went to Rome and met with the Jesuit astronomers. Probably he felt that if he could win them over, he would smooth his path in any future problems with the Church. Father Clavius, author of Gregorian Calendar and undisputed leader of Jesuit astronomy had a hard time believing there were mountains on the moon, but he surrendered with good grace on looking through the telescope (Sant., pages 18, 20)
One archbishop wrote (p 20): “Bellarmine asked the Jesuits for an opinion on Galileo, and the learned fathers sent the most favorable letter you can think of …” Bellarmine was chief theologian of the Church, and a Jesuit himself. Bellarmine wrote in a letter to A. Foscarini, 12 April 1615:
Third, I say that if there were a true demonstration that the sun is at the center of the world and the earth in the third heaven, and that the sun does not circle the earth but the earth circles the sun, then one would have to proceed with great care in explaining the Scriptures that appear contrary, and say rather that we do not understand them than that what is demonstrated is false. But I will not believe that there is such a demonstration, until it is shown me.”
(Quote from Feldhay, Galileo and the Church, Cambridge, 1995, page 35)
This was far from a mindless rejection of the Copernican picture—it just demanded a more convincing demonstration.”

It seems the problem was not mathematical misalignment with reality, and the construction of complex mathematics to avoid heresy: they simply refused to believe it. This of course has its latter-day parallels.

28

StevenAttewell 06.12.09 at 5:11 pm

Hidari – hear, hear! I think this part is most important: “Many of us are worried by the extent by which neo-classical assumptions are untested or untestable either by ‘raw’ data or by experiment.” The problem with economics isn’t just the modelling and the maths per se, but the way in which the models are untouched by empirical observation. A good blend of rationalism and empiricism (or theoretical vs. applied science) would see that the empirical observation/experiment is used to test models and to generate phenomena for theorizing, and in return, models are evaluated on the basis of their relationship to the world and are formed from our observations of how things happen.

29

Kieran Healy 06.12.09 at 5:13 pm

The problem with economics isn’t just the modelling and the maths per se, but the way in which the models are untouched by empirical observation.

In the Chicago view, this is a feature, not a bug.

30

StevenAttewell 06.12.09 at 5:35 pm

Precisely – which to me is bad science.

31

Hidari 06.12.09 at 5:36 pm

#28 ‘The problem with economics isn’t just the modelling and the maths per se, but the way in which the models are untouched by empirical observation.’

‘Experience without theory is blind, but theory without experience is mere intellectual play.’ (Kant)

Many of us suspect that much/most of neo-classical economics is ‘mere intellectual play’.

32

Barry 06.12.09 at 6:08 pm

Or (stealing from a blogger whom I’ll refrain from naming), if a US GOP presidential candidate wanted a global warming denier, he’d have to go to a ‘think tank’ or foundation or institute(i.e., intellectual brothel); if he wanted a creationist, he might find one at an evangelical college, but would probably still go to a ‘think tank’. For a historian, it’d probably be again to the intellectual red-light district (although the UCLA history dept has a promising start). In some cases, going to the dregs of academia (e.g., UC Fresno) would provide a low-level professor willing to turn tricks on the side.

However, if he wanted to find an economist who would say whatever is necessary,
he’d be well advised to go to Harvard or Chicago, where the leading lights of the discipline are lined up for his inspection and purchase. And they aren’t doing it to feed their starving children; they do it because they’re right-wingers with no morals at all, and the current system within the economics professoriate doesn’t seem to provide *any* negative incentives.

33

dsquared 06.12.09 at 6:32 pm

#32: quite right. I have a post in draft on that very subject and will try to remember to credit you.

On the subject of Jesuit astronomers, my source is “The Da Vinci Code”, by Dan Brown – are you trying to tell me that he’s wrong or something?

34

Hidari 06.12.09 at 6:53 pm

Incidentally, looking at the ever-reliable Wikipedia, I see that one of the key motivations of C.S. Peirce in developing his ‘pragmaticism’ was to implicitly critique both empiricism and rationalism by developing a new ‘method’ that would use the ‘best bits’ of both of them, and thus demonstrate that science only truly progressed when the two approaches were combined and used together.

Yet another reason to be a pragmatist.

35

Barry 06.12.09 at 6:56 pm

Thanks, Daniel.

36

Nassim 06.13.09 at 8:52 am

Hi Hidari,
I disagree about the lineup of paramtetric/nonparametric statistics along the lines of rationalism/empiricism. Rationalism is, as you describe it, the transposition of an abstract representation on top of what you see, with causal links, etc. But empiricism does not allow GENERALIZATION outside what you saw; empiricism is skepticism about induction and deriving properties of the unseen based on the seen. This clashes heavily with the use of nonparametric statistics as a mode of deriving knowledge. This is what I meant in The Black Swan.
Now note also that empiricism is not a strict attitude, just a tendency; you default non non-Generalization. You also accept asymmetries (the Black Swan).

Thanks,
Nassim

PS I agree that Islamic science is Western Science at its core. Actually Islamic medicine is heavily rationalistic.

37

ejh 06.13.09 at 5:48 pm

However, if he wanted to find an economist who would say whatever is necessary,
he’d be well advised to go to Harvard or Chicago, where the leading lights of the discipline are lined up for his inspection and purchase. And they aren’t doing it to feed their starving children; they do it because they’re right-wingers with no morals at all, and the current system within the economics professoriate doesn’t seem to provide any negative incentives

Contra Daniel I don’t think this is right, really, and I’ve got a couple of reasons:

a. isn’t it the case that – very generally speaking – Economics is interested in production and the creation of wealth, and that much or most of the time the free market proves quite an effective way of doing this? It’s not very good at producing a fair or equitable society, or at looking after the vulnerable,- but although many economists are individually interested in these questions, it’s not necesarily Economics’ job. There’s therefore an inbuilt bias towards whatever produces (or seems to produce) the most tins of beans, as opposed to any other questions that may exist.

b. most currently-practising economists will surely have grown up during and after the period of the collapse of the command economies and the move away from more statist models by nearly all societies. It’s therefore not wholly unreasonable if they take the economic superiority of the free market pretty much as a given – after all, everybody else seems to.

c. more cynically, the free market works much, much better for people with advantages of birth than people without, and I don’t reckon there’s too many economists from poorer backgrounds. And they’re no more likely to see how important those advanatages are than most people who enjoy them.

38

Barry 06.13.09 at 5:54 pm

I agree with (c), and much of (b), but note that it really disses the ability of economics professors to see the larger picture (and is probably correct).

As for (a), I feel that it’s a two-step/two-step con. Step one: “First, ‘maximize production’, using the free market, and only later worry about the distribution; the winners can be taxed, and the fruits redistributed.” Step two, later “No, you can’t tax the winners and redistribute things, because that would interfere in the free marked!”

Note: massive inability to see government interventions which help the rich will not ruin one’s reputation as a sharp and incisive economist :)

39

StevenAttewell 06.13.09 at 6:18 pm

EJH – I entirely disagree. Economists’ fixation on individual rationality, general equilibrium, and other basic foundational concepts of the discipline can be found in many different time periods – even in the midst of the Great Depression, there were many advocates of the “Treasury view,” even at the height of WWII, there were economists who insisted that what was going on was theoretically impossible, and now, you can still find people who will deny the very possibility of stimulus. In fact, if you go even further back, and look at struggles between neoclassical and institutional/historical economists, you can see how nakedly ideological this can get – Yuval Yonay’s Struggle for the Soul of Economists about struggles within the discipline between the 1880s and 1910s.

40

Old-Timer 06.13.09 at 6:26 pm

Dsquared having inexplicably failed to put in his usual commercial for Philip Mirowski’s work, I shall fill the gap. He is particularly good on the ideological commitments of the Chicago school.

41

cma 06.13.09 at 7:17 pm

“Isn’t the real issue here between Rationalism and Empiricism?”

I think you’re actually missing an important class of player — the Engineers. In physics you can ignore them because the invention of the cell phone won’t change your theoretical model of wave mechanics or your empirical observations of light difraction. In economics the fact that someone is using your model of economic behavior to govern their economic behavior is rather important, especially if routine use of the model becomes ubiquitous, as it will if it has any predictive power.

Intuitively, I think there’s an analogy to Godel’s incompleteness theorem — your model is incomplete if it lacks the self-descriptive power to model the impact of its use as a predictive tool, or necessarily inconsistent otherwise. Another intuitive leap: those regions of incompleteness and/or inconsistency will be fertile breeding grounds for black swans.

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Alex K. 06.13.09 at 10:43 pm

“The problem with the high priests of mathematical ecnomics was not the fact that they used mathematics – it was that they allowed the ideology to drive the theory. The commitment to general equilibrium and to rational expectations was a founding belief, and all the rest of the modelling had to bend its way around that.”

This is just plain wrong. I don’t think there is any evidence that Arrow had any strong belief about the realistic nature of general equilibrium — neither did Frank Hahn or many other contributors to the model.

In fact, I could make a strong case that the use of general equilibrium was/is a big factor in strengthening the criticism of right-wing ideology. All GE seems to be good for is finding “market imperfections” — as if the perfection of GE is anywhere close to being achievable in the real world.

The _real_ problem with current mathematical economics is that it puts the mathematics of optimization in a central place, and it takes for granted the correctness and common knowledge of the models on which that optimization is based.
But it is the selection of the models used that is the crucial aspect of real world economies — the optimization of those models is a secondary and tertiary matter.

And optimization has a central place simply because that’s all that most post-Samuelson economists know how to do — or worse, they know that unless they put their results in an optimization form, their work will not get published.

So if you want to blame somebody, blame Samuelson — and not for the use of mathematics, but for the use of the wrong kind of mathematics.

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ejh 06.14.09 at 7:06 am

Economists’ fixation on individual rationality, general equilibrium, and other basic foundational concepts of the discipline can be found in many different time periods

So they can, but not, I think, in quite the same proportion. What was the prevailing economic wisdom in, say, 1928 or 1998 was not what it was in 1958.

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a.y.mous 06.14.09 at 1:35 pm

@36,

Is that “you”, Nassim? If so, maybe it is about time CT got you to make a series of guest articles. Many comments here over the past couple of years offer a negative slant to your views and theses. Perhaps you could clarify some of them.

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StevenAttewell 06.14.09 at 4:35 pm

EJH – right, but as I’ve noted, the prevailing wisdom isn’t always what’s delivering the goods at that point in time, and the transitions are nowhere as smooth as they would be if it was merely a matter of seeking the models with the most production. Instead, you had political wars within economics, with neoclassicals warring against institutionalists from the 1880s-1910s explicitly because institutionalist economists supported labor unions and other “communard” ideas, the “Treasury school” shrieking imprecations against Keynesianism as it was delivering, and Keynesianism remaining quite strong throughout the years of stagflation until brought down by the neoclassicals.

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ejh 06.14.09 at 4:52 pm

Yes of course, but intellectual transitions always take time, don’t they? And people don’t automatically abandon ideas that they’ve adhered to for, perhaps, decades, just like that – obviously reasons of personal stubbornness will play a role but also, people don’t necessarily know that what’s changed is a permanent change. We only really know that years later. You have to give it time: and you have, in this instance, to allow time for new thinkers and new economists to come to prominence.

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StevenAttewell 06.14.09 at 5:27 pm

I agree about a trailing effect. Where we disagree is what mechanisms drive that transition. I’m of the opinion that this process is driven primarily by ideology and politics, and you seem to be suggesting that it’s driven by: a. a search for increased production, b. generational divides, and c. class privilege within the discipline. I don’t necessarily disagree about b and c, although I think they’re less important factors (c for example doesn’t explain why some privileged sons of the Yankee gentry went into economics in the 1880s and became die-hard neoclassical economists and some went into the same discipline at the same time (often studying under the same professors), and became die-hard institutionalist/historicist economists).

I do, however, think that ideology and politics are a more important factor than the search for increased production – in no small part because increased production is an inherently political and ideological question. To give some examples – both a John Bates Clark and a Thorstein Veblen would say that, all other things being equal, they want a system that produces more. However, Clark would say that competition will get you where you want to go and that any attempts to interfere with it would make things worse, and Veblen (his student, ironically), would say that competition is actually going to create artificial scarcity to maintain administered prices, and that a soviet of engineers would move beyond the limits of corporate capitalism to embrace technological innovation and full production.

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ejh 06.14.09 at 5:50 pm

So they would. But, for a generation and more, in much of the world, freer markets do seem to have equalled hugely increased production and swift technological innovation and I don’t think one can blame economists from drawing conclusions from empirical data. (Though one can certainly blame them for drawing crude conclusions from this, and that I guess is where b. and c. come to the fore.)

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Tracy W 06.15.09 at 7:46 am

Barry: However, if he wanted to find an economist who would say whatever is necessary,
he’d be well advised to go to Harvard or Chicago, where the leading lights of the discipline are lined up for his inspection and purchase.

What is the record of economists at Harvard and Chicago in saying what the political powers of the day want to hear?

Let’s quote Milton Friedman, in an interview:

ROBINSON: So Bush is wrong? Cutting taxes would not stimulate the economy?

FRIEDMAN: No, it would not stimulate the economy. Look, if you want—I can give you a long theoretical argument as to the problem—but let me just turn to one dominant fact: you have Japan, which has been in a kind of rolling recession for 10 years. In that period it’s hadeither 4 or 5 major fiscal stimuli programs.

ROBINSON: That is to say, increases in government spending?

FRIEDMAN: Increases in government spending and reductions in government taxes. They’ve been an utter failure, they haven’t had any affect on the economy whatsoever.

Or that the letter against the bailout back in September 2008, while George Bush was still in power and before the November elections, was signed by quite a few Chicago and Harvard economists.
http://faculty.chicagobooth.edu/john.cochrane/research/Papers/mortgage_protest.htm

This doesn’t look like the leading lights of Harvard and Chicago have been purchased.

And they aren’t doing it to feed their starving children; they do it because they’re right-wingers with no morals at all, and

Lovely to see this display of open-mindedness here.

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Hidari 06.15.09 at 10:49 am

Hi Nassim

Thanks for your reply: I liked your book, btw (The Black Swan).

Perhaps I should have been clearer. What I said was:

‘That’s not to deny that economists (past) disdain for Bayesian methods and non-parametric stats isn’t a problem as well, of course. But they are hardly alone in that, and the reasons for this are also, arguably, rooted in Pythagorean/Platonic metaphysical assumptions.’

By which I meant, merely, is that I suspect that some (not all) of the use of parametric stats in economics (or anywhere) stems from a love of geometry: specifically, a liking for ‘clear’ and ‘symmetrical’ patterning, which arguably has its roots in Pythagorean number mysticism (via Platonic and neo-Platonic metaphysics…Plato being the Father of ‘Western’ Rationalism)…remember the Pythagorean’s horror of irrational numbers.

For example, I can’t prove it, but I suspect that much of the love for the Normal Distribution comes from a certain sort of mindset that simply likes the look of it: ie. that it is symmetrical and seems to impose (or imply) some kind of symmetrical, meaningful ,’nice looking’ pattern behind apparent chaos.

In the same way, some of the dislike of Bayesian stats stems from a dislike of, or fear of, ‘subjectivity’. …the promise of objectivity obtainable via pure cogitation being one of the key attractions of Platonism (to a certain mindset).

However, this does not imply (and I didn’t mean to state or imply) that the parametric/non-parametric distinction maps neatly onto the Rationalism/Empiricist distinction.

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Tracy W 06.15.09 at 2:21 pm

SteveAttwell:
The problem with economics isn’t just the modelling and the maths per se, but the way in which the models are untouched by empirical observation.

But hold on. Standard economic paper these days appears to be:
1. This is the problem.
2. This is our model.
3. Here’s some empirical data supporting this model.
For example, take Volume 29, Number 4 of The Energy Journal, published by the International Association for Energy Economics. First article, Papers Affecting an Economy’s Tolerance and Delay of Response to the Impact of a Positive Oil Price Shock, is an empricial paper using regression analysis. Second paper: High Frequency Export and Price Responses in the Ontario Electricity Market. Again an empirical paper.
Now the advantage of these papers appear to be that you don’t need to have any brillant insights to what is going on in the economy. There’s nothing earthshattering in these papers, they always strike me a bit as grind the wheel, put in the regressions, and get your paper out the other end. (They are probably better than what I would have produced had I decided to go into academia and some university been so foolish as to hire me). But they are most obviously looking at empirical observations.

Now the models taught in Econ 101 are generally untouched by empirical observation. But the early learning stages of a profession don’t tell us much about what the top professionals are doing. (High school chemistry would greatly annoy me because it seemed to follow the pattern of “learn a rule”, next year “learn the exceptions to that rule”, the next year learn that the first rule was entirely wrong and you have a new rule to learn, the year after that you learn the exceptions to the second rule, and then I fled to the comforts of engineering.) Perhaps Econ 101 should be taught completely differently. Perhaps high school chemistry should be taught completely differently. But Econ 101 is not what’s happening at the forefront of economics.

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StevenAttewell 06.16.09 at 3:21 am

Tracy W:

If that’s the case that economists are down with empiricism, then why did David Card’s work on minimum wages cause such an uproar? Why did Alan Blinder get ripped for straying from the line on free trade? Why are historical and institutional economists – the most empirically-minded schools – not the dominant force within the discipline?

The point I’m making isn’t that economists don’t do empirical work (although I would argue that the high-status positions go more to theory), but that there isn’t step 4. “Holy shit, the basic model doesn’t work – abandon [Major Premise of Necoclassical Economics].” Instead, we get Ptolymaic cycles to prop up the basic model.

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Tracy W 06.16.09 at 8:34 am

If that’s the case that economists are down with empiricism, then why did David Card’s work on minimum wages cause such an uproar?

Ummm, because it was surprising and didn’t fit in with the theory? What did you expect? Economists to be emotionless about their subject? You are aware that economists are human beings, aren’t you?
Anyway, this statement appears to conflict your original thesis. If your thesis is that modern economics didn’t care about empiricism, then surely there wouldn’t have been an uproar, the data would just have been ignored.

Why did Alan Blinder get ripped for straying from the line on free trade?

You mean Alan Blinder, the bloke who is a Professor of Economics at Princeton University? If that’s being ripped, I think most economists would adore that sort of suffering. And why are you worried about economic theories being attacked? Isn’t that what we want to happen? The process may get emotional, but that’s the problem with any science that has to be done by human beings.

Why are historical and institutional economists – the most empirically-minded schools – not the dominant force within the discipline?

Why do you say that they are more empirically-minded than the data-mining papers like the ones that I listed? In other words, what metric are you using?

And why would you expect economics to have one dominant force within the discipline? There are several problems in economics, in the sense of ones that governments are willing to pay for research on:
1. Stablity of the whole economy in OECD countries.
2. Why are some countries rich and others poor?
3. What to do about environmental problems.
4. What conditions create economic growth within rich countries?
5. Lots of smaller-scale policy decisions, eg IP growth, support for the arts, that have some economic effect.

The variety of issues makes it seem unlikely to me that there would be one dominant force. Why do you think there would be one?

The point I’m making isn’t that economists don’t do empirical work (although I would argue that the high-status positions go more to theory)

I would say that that is because original thinking that proposes likely-sounding hypotheses explaining various empirical facts is more useful, and rarer because it’s harder to do. I mean, it’s one thing to collect together facts, but it’s another to provide a glimpse of an underlying framework. Mendeleev’s periodic table in chemistry was a great leap forward because it allowed the prediction of other elements and made patterns reocurring. Einstein’s relativity papers were important because they explained a series of puzzles that other researchers had noticed. Why would you expect economics to be different to other sciences?

but that there isn’t step 4. “Holy shit, the basic model doesn’t work – abandon [Major Premise of Necoclassical Economics].”

Hold on. In my microeconomics 401 class, the lecturer started off with the expectations theory of decision-making under uncertainty, showed us that it didn’t work, using us as proof, and then went on to some other theories proposed to explain actual human-decision-making. I was quite impressed, mostly my engineering lecturers left the proof of their assertions until the lab, they didn’t do them within the lecture. So in this case the step did happen.

Or take the response to the Great Depression. The conventional macroeconomics that couldn’t explain the prolonged slump was dumped and Keynesianism took over, then Friedman came up with monetarism as an alternative theory, and the neo-classicists started proposing alternative theories, then Keynesian economics as then understood collapsed because of stagflation, so that was abandoned and people started working on neo-Keynesian theories.
How do you explain these sorts of events?

Now the problem with macroeconomics is two-fold: 1. It’s a hard area to make scientific progress in as you can’t build a macroeconomy in a lab, indeed you can’t even see a whole macroeconomy, all we have is statistics that measure bits of it with an unknown error rate, 2) politicians want advice about what to do now about conditions in the macroeconomy, and can’t wait until economists have come up with a theory that has survived all sorts of harsh tests and explains everything about the macroeconomy. So applied economists muddle along with what they’ve got.

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ejh 06.16.09 at 9:10 am

You are aware that economists are human beings, aren’t you?

Another question, perhaps, is whether or not economists are always aware that human beings are human beings.

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Robert 06.16.09 at 10:29 am

“Ummm, because [David Card’s work on minimum wages] was surprising and didn’t fit in with the theory? “

The above claim about what the theory states is false. Good economists have known the above claim is false for about half a century. Clicking on my name explains.

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Tracy W 06.16.09 at 10:38 am

Another question, perhaps, is whether or not economists are always aware that human beings are human beings.
And yet another question, perhaps, is whether or not economists and other policy advisors are always aware that governments are run by human beings.

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Hidari 06.16.09 at 10:46 am

‘Einstein’s relativity papers were important because they explained a series of puzzles that other researchers had noticed.’

This has an element of truth, but the major reason Einstein’s relativity papers were important was that they made testable predictions. And if Einstein had made predictions which turned out NOT to be the case, then his theory would have been falsified and thrown in the bin, no matter how pretty the maths was.

Examples of special pleading by economists:

‘1. It’s a hard area to make scientific progress in as you can’t build a macroeconomy in a lab, indeed you can’t even see a whole macroeconomy, all we have is statistics that measure bits of it with an unknown error rate’.
True but so what, and in what was is this different from, say, astrophysics? You can’t build the cosmos in the lab either. We don’t ‘only’ have statistics either: there is now a school of experimental economics (although its emphasis on empirical work means that it tends to be looked down upon by neo-classicists). There is also reams of data about human economic behaviour from anthropology, psychology and sociology (not to mention economic history) that economists could make use of but generally speaking, don’t.

‘2) politicians want advice about what to do now about conditions in the macroeconomy, and can’t wait until economists have come up with a theory that has survived all sorts of harsh tests and explains everything about the macroeconomy. So applied economists muddle along with what they’ve got.’

This is a restatement of the ‘economics is a young science, that’s why we have made so little progress’ argument, is it not? But actually people have been thinking about economics for millenia: it’s not a particularly new field .Moreoever economists now have access to astonishing amount of computer power to run simulations and model the economy. If they aren’t making progress it’s more likely to be because of conceptual confusion than because politicians ask them to make their theories able to survive ‘harsh tests’ (like bearing some resemblance to reality, for example).

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Tracy W 06.16.09 at 11:02 am

Robert – if my statement was false, then why do you think there was a controversy? If you wish to define good economists as those economists who agree with you that minimum wage rates don’t conflict with theory then I can simply explain the controvery as a result of bad economists, but at least economists who do respond to empirical evidence as opposed to simply ignoring it, as I would have expected if StevenAttewell’s claim about economists’ attitude to empirical evidence was accurate.
And, on the basis that this is the post you intended to link me towards, I find myself unimpressed. Your conclusion only considers one production function, but this is not a good model of the real economy, where there are many production functions – eg I would not expect school staff’s production functions to look anything like power plants staff’s production functions.

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Tracy W 06.16.09 at 11:42 am

This has an element of truth, but the major reason Einstein’s relativity papers were important was that they made testable predictions. And if Einstein had made predictions which turned out NOT to be the case, then his theory would have been falsified and thrown in the bin, no matter how pretty the maths was.

Nope. Newtonian physics has not been thrown in the bin even though it made predictions that turned out to be false. Newtonian physics is still taught in physics classes. That’s because it’s a useful approximation to relativity theory for most situations well below the speed of the light, and the maths is easier.

Einstein’s theory of relativity conflicts with quantum mechanics, but it hasn’t been thrown in the bin, nor has quantum mechanics because it conflicts with relativity theory.

Examples of special pleading by economists:

Oh don’t be silly. I gave reasons for the distinction. You even yourself said directly below that one of them was true. I may be wrong in my arguments, but I’m not commiting the fallacy of special pleading.

True but so what,

The reason that the inability to perform proper experiences matters is that we can’t propose a hypothesis and then test it directly, we have to propose a hypothesis and scrabble around looking for historical data to disprove it. This is harder than, say, engineering, where you can just ask “well, have you got it to work?”. I hope this answers your “so what”. If not, can you please explain what is unclear to you?
and in what was is this different from, say, astrophysics?
I am quite happy to agree that astrophyiscs is like macroeconomics in respect of the difficulty in doing experiments.
I will note that astrophysics is slightly different in that its reuslts have a less-obvious effect on policy-making, so ideologies probably have a smaller effect on astrophysics than they do on economics. Although I am not an astrophysicist, so I admit there is a possibility that either or both of these two statements will cause real astrophysicists to laugh at me.

Was there a point that you were trying to make in mentioning astrophysics?

We don’t ‘only’ have statistics either: there is now a school of experimental economics (although its emphasis on empirical work means that it tends to be looked down upon by neo-classicists).

You appear to be reading my statement as one about economics entirely, as opposed to a statement specifically about macroeconomics. I have read a lot of behavioural economics papers and assisted one of my lecturers in conducting some behavioural economics experiments. I have never seen or read of any attempt to create a whole macroeconomy in a lab.

You also don’t mention the name of any of those neo-classicists who look down on the school of experimental economics. Can you please state the names of these neo-classicists? I would be interested to read their arguments. I didn’t read any critical responses to Vernon Smith getting the Nobel prize.

There is also reams of data about human economic behaviour from anthropology, psychology and sociology (not to mention economic history) that economists could make use of but generally speaking, don’t.

This is possibly due to limited mental power. We need some genius to come along and incorporate all this reams of data into, say, a good theory of macroeconomics that can be used for policy-making. In fact, I wonder why you yourself don’t do so. Could you please do us the honour of enlightening those foolish idiots by showing us how easy it is to incorporate all these reams of data from anthropology, psychology and sociology into macroeconomic theories?

This is a restatement of the ‘economics is a young science, that’s why we have made so little progress’ argument, is it not?

No, it isn’t. A clue to this is that I never used the word “new”. The claim is that macroeconomics as a science is hard because you can’t do experiments (note that is a claim about macroeconomics specifically) and also because macro economies are hard to see all at once, so we don’t really know what is going on in them. This is not related to the newness or otherwise of economics.

Moreoever economists now have access to astonishing amount of computer power to run simulations and model the economy. If they aren’t making progress it’s more likely to be because of conceptual confusion than because politicians ask them to make their theories able to survive ‘harsh tests’ (like bearing some resemblance to reality, for example).

It’s quite possible that economists’ inability to make progress is because of conceptual confusion. That doesn’t mean that that conceptual confusion can be easily solved. And this sort of limited progress despite massive computing power occurs outside of macroeconomics as well. Artificial Intelligence for example has struggled becuase of the difficulties in developing a computer that can see visual information and process it into a form usable for walking across a room without walking into something, or picking up a cup randomly placed on a table without spilling it, something most of our brains do unconsciously. Given the difficulty in programming vision, let alone all a whole artificial intelligence that’s the equivalent of the human brain, I think it’s rather optimistic to think that modelling an economiy would be easy just because we now have astounding amounts of computer power.

And I would hardly call “bearing some resemblance to reality” a “harsh test”. I would say that for a macroeconomic model to be very useful for what politicians want to do, it needs to bear a lot of resemblances to reality. For a start, I would say, a really useful macroeconomic model should be able to predict every recession and also not to predict recessions when they don’t happen. I don’t know of any macroeconomic model that meets both those goals, although that may be a reflection of my ignorance.

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Barry 06.16.09 at 12:12 pm

Tracy W 06.15.09 at 7:46 am

Barry: However, if he wanted to find an economist who would say whatever is necessary,
he’d be well advised to go to Harvard or Chicago, where the leading lights of the discipline are lined up for his inspection and purchase.

“What is the record of economists at Harvard and Chicago in saying what the political powers of the day want to hear?”

Start with Gregory Mankiw of Harvard. Otherwise known as Greg ‘my blog comments are turned off, because the internet guys beat my punk *ss’ Mankiw. Then go to everybody who supports the ‘Treasury view’. And everybody who kissed Greenspan’s *ass.

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Barry 06.16.09 at 12:19 pm

Hidari: “This is a restatement of the ‘economics is a young science, that’s why we have made so little progress’ argument, is it not?”

Note that ‘economics is a young science’ is an excuse for a lot, but that it also carries an obligation to be humble.

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Tracy W 06.16.09 at 12:50 pm

Start with Gregory Mankiw of Harvard.

The guy who roundly disagreed with President Bush about the effect of Bush’s tax cuts on economic growth? See <a href="http://gregmankiw.blogspot.com/2007/01/mankiw-vs-bush.html. If this is brought and sold then Republic presidents really suck at shopping.

Then go to everybody who supports the ‘Treasury view’. And everybody who kissed Greenspan’s *ass.

Names please of those people who supported the “Treasury view” and who you also believe are available to be bought and sold by Republican presidents.

I also note how your claim has morphed from the leading lights of the economics profession at Chicago and Harvard to one named person (who you are wrong about) and a set of unnamed persons at unnamed universities who support an undefined view and also engage in what I presume you mean to be the metaphorical act of kissing Greenspan’s ass. You are moving into less and less falsifiable claims, rather than trying to defend your original claim, which in my experience is a good sign that someone just made stuff up in the first place.

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Tracy W 06.16.09 at 12:54 pm

Sorry about that earlier post. To try again:
Start with Gregory Mankiw of Harvard.

The guy who roundly disagreed with President Bush about the effect of Bush’s tax cuts on economic growth? See Mankiw vs Bush. If this is brought and sold then Republic presidents really suck at shopping.

Then go to everybody who supports the ‘Treasury view’. And everybody who kissed Greenspan’s *ass.

Names please of those people who supported the “Treasury view” and who you also believe are available to be bought and sold by Republican presidents.

I also note how your claim has morphed from the leading lights of the economics profession at Chicago and Harvard to one named person (who you are wrong about) and a set of unnamed persons at unnamed universities who support an undefined view and also engage in what I presume you mean to be the metaphorical act of kissing Greenspan’s ass. You are moving into less and less falsifiable claims, rather than trying to defend your original claim, which in my experience is a good sign that you just made stuff up in the first place.

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StevenAttewell 06.16.09 at 5:33 pm

Tracy W:

Ummm, because it was surprising and didn’t fit in with the theory? What did you expect? Economists to be emotionless about their subject? You are aware that economists are human beings, aren’t you?
Anyway, this statement appears to conflict your original thesis. If your thesis is that modern economics didn’t care about empiricism, then surely there wouldn’t have been an uproar, the data would just have been ignored.

Two things: first, people didn’t just react to Blinder on a “wow, that’s surprising” level. As he recounts, this was the reaction, “Blinder, have you lost your mind? (Answer: I think not.) Have you forgotten about the basic economic gains from international trade? (Answer: No.) Are you advocating some form of protectionism? (Answer: No !) Aren’t you giving aid and comfort to the enemies of free trade? (Answer: No, I’m trying to save free trade from itself.)”
Now that’s going beyond mere academic interst, and I think your comment about being emotional is important – if all this was a case of pure disinterested science, this wouldn’t be happening. But when someone brings in “aid and comfort to enemies,” there’s some ideology at work here, a deeper commitment to something being true and good beyond what the data shows us.

Second, my argument wasn’t that it doesn’t care – it’s that it doesn’t re-evaluate its premises based on empirical data. So sure, people do empirical economics all the time, but the basic theoretical fraemworks – the ones that are used to structure public policy – don’t change.

You mean Alan Blinder, the bloke who is a Professor of Economics at Princeton University? If that’s being ripped, I think most economists would adore that sort of suffering. And why are you worried about economic theories being attacked? Isn’t that what we want to happen? The process may get emotional, but that’s the problem with any science that has to be done by human beings.

I’m worried because he took so much heat that he stopped working on minimum wage issues, and there aren’t that many people working on minimum wages to begin with. As he puts it, “I’ve subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole.”

This isn’t just emotion. These are people who believe that economics = minimum wage is evil, and anyone who says different is a traitor to a CAUSE.
And that cause is political – the idea that raising the minimum wage decreases employment comes straight out of marginalism and it’s always used in public discourse on the minimum wage in a debate where economists are the heavy siege weapons of political warfare.

Why are historical and institutional economists – the most empirically-minded schools – not the dominant force within the discipline?

Why do you say that they are more empirically-minded than the data-mining papers like the ones that I listed? In other words, what metric are you using?

Here, I admit, I’m more out on a limb here, because I don’t do economics, although I’ve read a lot about the history of economics. Institutionalists and historicists explicitly disavow modeling and abstract theorizing and believe that only empirical observation of institutional or historical development of economic activity should be done. From a methodological standpoint, that has to be more empirically-focused than an approach that starts with assumptions about human and economic behavior, then constructs theoretical models, then goes out and does research based on those models.

And why would you expect economics to have one dominant force within the discipline?

The variety of issues makes it seem unlikely to me that there would be one dominant force. Why do you think there would be one?

Even if there’s not one dominant force, it’s fair to say that historical and institutional economics is low, low on the totempole. Look what happened to Notre Dame’s economics department as an example of how the orthodoxy is maintained.

but that there isn’t step 4. “Holy shit, the basic model doesn’t work – abandon [Major Premise of Necoclassical Economics].”

Hold on. In my microeconomics 401 class, the lecturer started off with the expectations theory of decision-making under uncertainty, showed us that it didn’t work, using us as proof, and then went on to some other theories proposed to explain actual human-decision-making. I was quite impressed, mostly my engineering lecturers left the proof of their assertions until the lab, they didn’t do them within the lecture. So in this case the step did happen.

If it’s simply the case that economists are constantly revising and re-evaluating core truths, why is that we saw a re-emergence in economic doctrines like the ones that John Quiggan has been writing about in his “Refuted Economic Doctrine” series? Why have Brad DeLong and Paul Krugman been talking about a “Dark Ages” in economics, where ideas like the Treasury view are being espoused by major economists?

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Tracy W 06.16.09 at 8:47 pm

StevenAttewell : Now that’s going beyond mere academic interst, and I think your comment about being emotional is important – if all this was a case of pure disinterested science, this wouldn’t be happening.

And of course it happens in other sciences. See for example the reactions to the continental drift theory. http://www.scientus.org/Wegener-Continental-Drift.html

Science in reality is not pure and disinterested. It’s human and messy. But it’s the best we can do. And I will add in a defence of emotion in science. To be really tested a theory not merely needs to be thoroughly attacked, and enemies are the best at this:

One way of dealing with errors is to have friends who are willing to spend the time necessary to carry out a critical examination of the experimental design behorehand and the results after the experiments have been completed. An even better way is to have an enemy. An enemy is willing to to devote a vast amount of time and brain power to ferreting out errors
both large and small, and this without any compensation. The trouble is that really capable enemies are scarce; most of them are only ordinary. Another trouble with enemies is that they sometimes develop into friends and lose a great deal of their zeal. It was in this way the writer lost his three best enemies. Everyone, not just scientists, needs a good few enemies. – Georg von Békésy ( physicist and psychologist)

If a physicist and a psychologist can think that enemies are useful, this strikes me as an argument for them in economics as well.

So sure, people do empirical economics all the time, but the basic theoretical fraemworks – the ones that are used to structure public policy – don’t change.

So you think that there has been no change over recent decades in the influence of neoliberal thought on policy-making? How do you explain the introduction of inflation-targeting and central bank independence in the 1980s then?

Here, I admit, I’m more out on a limb here, because I don’t do economics,

In other words, you just made up your assertion that “historical and institutional economists” are the most empirically-minded schools.

Institutionalists and historicists explicitly disavow modeling and abstract theorizing and believe that only empirical observation of institutional or historical development of economic activity should be done.

There are three problems with this sort of approach:
1. How do you decide what economic activity should be empirically observed without any abstract theorising? How do you even know what economic activity is without abstract theorising?
2. If you don’t do any abstract theorising or modelling, you can’t offer anything useful to policy-makers.
3. You’ve committed your science to lacking a certain sort of wonder. You’ve ruled out ever discovering the economic equivalent of the law of evolution, or Newton’s three laws of motion, or the periodic table, or recessive genes, or the subconscious.

I think this explains your question why historical and institutional economics is low, low on the totem pole. They’ve adopted a philosophy that is unlikely to attract funding because it can’t offer either useful practical advice, or a feeling of wonder and awe. Of course if they want to do that, that’s their choice, I believe in freedom, but I also think that people have the freedom to ignore their research.

Of course, I am relying on your statement that institutionalists and historicists explicitly disavow modelling and abstract theorising. Since you just made up your earlier statement that these were the most empirically-minded schools, it strikes me as entirely possible that you just made this statement about their beliefs up too.

If it’s simply the case that economists are constantly revising and re-evaluating core truths,

Why do you think it’s simply the case? I asked you before about this when you seemed surprised that economists might react emotionally to the minimum wage theory. I still don’t get why you expect economics to be all non-emotional. Have you ever met any human beings in real life?

why is that we saw a re-emergence in economic doctrines like the ones that John Quiggan has been writing about in his “Refuted Economic Doctrine” series?

John Quiggins doesn’t get to define what is true and what is refuted. He can put forward his arguments, but he’s only one.

Why have Brad DeLong and Paul Krugman been talking about a “Dark Ages” in economics, where ideas like the Treasury view are being espoused by major economists?

Brad DeLong and Paul Krugman are human beings, as well as economists, and thus respond emotionally, like other economists.

Again and again, you seem to have this view that real sciences operate all dispassionately and economics is somehow inferior becuase it doesn’t. Am I right? Why do you believe that real sciences operate dispassionately?

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Hidari 06.16.09 at 9:39 pm

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StevenAttewell 06.16.09 at 11:08 pm

Tracy-

Ok, I feel we’re talking around in circles here. I am disputing that what you call emotion is actually ideology; what’s your argument to the contrary?

Enemies are a good thing, when they are attacking on disciplinary grounds, but not when they’re attacking you for “abandoning the cause of economics.” That’s not ferreting out errors or probing the weaknesses of arguments – it’s a political assault, because they didn’t like the empirical results of Card’s work. You haven’t really addressed this point.

Since the 1980s, I would argue that neoliberal influences have gotten stronger, not weaker, and that to me is a sign of ideological politics at work – your examples are good on this. Central bank independence is not non-ideological; there’s a strong element of the argument that suggests that economists need to resist popular pressures for looser monetary policy, because inflation is worse than unemployment. Likewise, inflation targeting suggests that economic stability is a higher-order value than economic growth.

“you just made up your assertion that “historical and institutional economists” are the most empirically-minded schools.” This is flat-out disingenuous; in the very next sentence, I say that I’ve read a lot of the history of economists, and I know that the debate was pitched directly at the issue of whether abstract modeling or empirical observation was better – read Yunal Yuvay’s Struggle for the Soul of Economics if you don’t believe me.

Regarding your 3 points, I think I over-stated my argument; institutionalists/historicists didn’t disavow theory or models per se, but thought that it should flow inductively after observation. As for public policy, well I think Gardiner Means was pretty damn influential during the New Deal, and he was a straight-up institutionalist.

“Have you ever met any human beings in real life?” This is non-responsive. I was taking issue with your statement:

Or take the response to the Great Depression. The conventional macroeconomics that couldn’t explain the prolonged slump was dumped and Keynesianism took over, then Friedman came up with monetarism as an alternative theory, and the neo-classicists started proposing alternative theories, then Keynesian economics as then understood collapsed because of stagflation, so that was abandoned and people started working on neo-Keynesian theories.
How do you explain these sorts of events?

And suggesting that changes were not merely the product of theories not working in response to crises (a sort of Kuhnian theory), but rather there has been significant influence from the political ideology of economists.

Again, what’s your rationale for claiming that political disputes are actually emotional disputes? If that’s the case, why are economists talking about the “cause of economics”?

Re: Krugman/DeLong, this isn’t just a question of emotions. Krugman and DeLong are both self-identifying progressives, who are reacting to what they see as disciplinary backsliding – the revival of the Treasury view – that lacks a good disciplinary rationale. I don’t propose that there aren’t emotional subtexts here, but I think the primary conflict is political.

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Jock Bowden 06.17.09 at 8:39 am

SteveAtwell

I take your point about democracy and economic theory. One excellent compromise would be a resurgence of the teaching of economic history, which basically died over the past twenty years, replaced – most unsatisfactoryly from a political perspective – by all that poststrcuturalist tedium in undergrad history and social sciences generally (except economics itself of course)

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Tracy W 06.17.09 at 9:10 am

I am disputing that what you call emotion is actually ideology; what’s your argument to the contrary?

I don’t have one. I think ideologies cause people to get emotional (and of course many other things cause people to get emotional as well). Even before you started this line of argument I was entirely convinced that ideology is part of what causes economic debates to get heated. I am not going to say it’s all, because I’ve seen debates get heated in engineering circles where political ideology doesn’t come into it, but I think the ideological motivation explains a lot of the emotion, though I can’t give you a percentage.

Enemies are a good thing, when they are attacking on disciplinary grounds, but not when they’re attacking you for “abandoning the cause of economics.” That’s not ferreting out errors or probing the weaknesses of arguments – it’s a political assault, because they didn’t like the empirical results of Card’s work. You haven’t really addressed this point.

I agree that attacks should be focused on the quality of the work, not on political grounds like “abandoning the cause of economics”. But that sort of attack doesn’t convince me that economics is not a science. It’s just a science done by humans, who do get emotionally involved and do launch attacks based on extraneous factors and do not like results. Consider for example the heated debates about research into the benefits or costs of childcare, or abortion, or the inheritability of IQ.

As I said earlier, “Science in reality is not pure and disinterested. It’s human and messy.” I don’t know how I can address your point any more than I already have.

Since the 1980s, I would argue that neoliberal influences have gotten stronger, not weaker, and that to me is a sign of ideological politics at work – your examples are good on this.

But your original argument was, to quote:

So sure, people do empirical economics all the time, but the basic theoretical fraemworks – the ones that are used to structure public policy – don’t change.

How can you combine this argument here with your statement just above that neoliberal influences have gotten stronger? Things can’t both not change and also get stronger. Getting stronger is a change.

Central bank independence is not non-ideological; there’s a strong element of the argument that suggests that economists need to resist popular pressures for looser monetary policy, because inflation is worse than unemployment.

You’re stuck on the Philips curve hypothesis that there is a stable trade-off between inflation and unemployment. In fact, the theory behind central bank independence is that the more you make the trade-off towards unemployment the less-effective the trade-off gets, as market participants start to expect inflation and adjust their plans accordingly, so you eventually wind up with the stagflation of the 1970s, high inflation and rising unemployment. So, if people have low inflationary expectations you can use unexpected inflation to boost employment at low cost, but it’s a once in a generation trick (or however long you think market participants remember). The more you use it, the less effective it gets.

So a stronger argument for central bank independence is to resist the short-termism of politicians, particularly shortly before elections.

Likewise, inflation targeting suggests that economic stability is a higher-order value than economic growth.

Perhaps it suggests that to you. The stronger argument for inflation targeting I know of is that “we can’t get richer by just printing more money, we get richer by producing more goods and services.” I don’t know of any particular work on the possible trade-off between economic stability and economic growth, this of course could well be a reflection of my ignorance, not of the absence of such work.

These arguments may be wrong, of course, but they are less ideological than the arguments you stated.

This is flat-out disingenuous; in the very next sentence,

Actually yeah, on thinking about it, you’re right. I withdraw my accusation of just making stuff up. My apologies. I still however remain unconvinced that the work of the institutionalists and historists is more empirical than the articles I quoted. (I’m not arguing that it isn’t more empirical, I’m saying that we don’t know.)

As for the value of the institutionalist and historicist work, Ronald Coase, Douglass North and Robert Fogel won Nobel Prizes in economics, which is pretty high on the totem pole.

There’s probably some interesting sociology research on why various hypothesis get tested and firmly debated in science and others don’t, but beyond my knowledge of the interests of politicians in economics, and the cognitive attractions of theories that seek to explain a variety of empirical results I don’t know much about it.

Again, what’s your rationale for claiming that political disputes are actually emotional disputes?

Firstly, I will say that I think that while political disputes are emotional, they are not merely emotional, there are often topics of substances discussed. I am not claiming that all political disputes can be explained merely in emotional terms.
Secondly, as to why I think that political disputes are also (though often not merely) emotional disputes, I’ve engaged in political disputes and I’ve felt my emotions running pretty high. I’ve also seen signs of emotions in other people, eg raised voices, changes in complexion, tense body postures, insults being hurled. I suppose I could be completely wrong about this, I would be interested in an alternate hypothesis explaining these observations.

As for Krugman/DeLong, I agree with you that ideology probably drives a lot of the conflict. I think this is good. Perhaps DeLong and Krugman are so self-driven internally that they would just as excellent work even if not exposed to ideologically-motivated attacks, but neither of us can see inside their minds. (If I’m wrong about this, I’d be fascinated to know.) But if their work survives the attacks of their opponents who hate their guts for ideological reasons, we can have some more confidence in Krugman and DeLong’s results even without being able to see into their minds. Of course it would be better to be able to test their theories in a lab, but we can’t build macroeconomies in labs and test them that way. Perhaps Vulcans could do that testing in a pure and disinterested way, but as Star Trek makes clear, humans aren’t Vulcans.

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Tracy W 06.17.09 at 11:17 am

In support of my statement that other sciences feature emotional debates, here’s an article from the NY Times about feuds in the hard sciences.
http://www.nytimes.com/1999/09/14/science/what-fuels-progress-in-science-sometimes-a-feud.html?pagewanted=1

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Barry Murphy 06.17.09 at 6:15 pm

Dear Dsq,

I got this link from Brad DeLong’s blog.

How very well you express your points. Rarely does one see such an example of hitting the nail absolutely on the head.

Larry Elliott has for years been displaying his lack of knowledge of economics written since 1975, and on policy he is just a disaster: for example, we all know that he’s against the Euro but only because sometimes because it’s too strong and sometimes because it’s too weak: what next?

Two points for readers of Larry to consider:

1. his attempt at a “first eleven” in economics that fails in effect to mention a Nobel prize winner or a John Bates Clark medal winner (wonks will understand or can Google or Wikipedia), is just risible: read the lists and disagree, I challenge readers. You and others are far better suited to argue this with Larry Elliott in detail,.

2. I know of no serious economist who argues that the answer to “How Much Maths” is not “As Much As You Can Manage” as a student, and “As Much As You Need” as a researcher or teacher. Very few economists can achieve work of value without much maths, Paul Krugman or Thomas Schelling perhaps, but even their work inspires mathematical extensions of great value. And this has been true since 1945 or earlier.

Regards,

Barry

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david 06.18.09 at 1:37 am

“These arguments may be wrong, of course, but they are less ideological than the arguments you stated.”

I’m wrong, you’re ideological, they’re nuts.

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david 06.18.09 at 1:38 am

I think that was George Packer’s point on the Iraq War II.

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Jock Bowden 06.18.09 at 8:22 am

SteveAtwell

I gotta say, lunging for the “neoliberalism done it” defence is beneath you.

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Jock Bowden 06.18.09 at 8:26 am

Nassim

There is no such thing as “Islamic Science”.

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Jock Bowden 06.18.09 at 8:44 am

StevenAttewell

There is much more in your Ptolemy analogy above than you might even realize.

My take is that orthodox economics is currently pre-Copernican; Ptolemaic in fact. But recall, that even though Ptolemaic astronomy was incredibly complicated mathematically – few today can read it with ease – advances in astronomy required revolutions in mathematics as well, not a refocus to more discursive methods.

I predict modern economics will take a similar path of Ptolemy to Copernicus to Kepler to Galileo to Newton…….

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Tracy W 06.18.09 at 10:38 am

David, StevenAttewell was saying that the arguments for central bank independence and inflation targetting were about values – a value that inflation was worse than unemployment, and a value that economic stability was a higher-order value than economic growth. What I was saying is that the best arguments I know for central bank independence and inflation targetting were not so value-driven as the ones that SteveAttewell outlined, the arguments were more technical ones about things like “building inflation expectations reduce the effectiveness of any trade-off between inflation and unemployment”, and technical arguments about whether you can stimulate sustainable economic growth by printing more money. (There’s a lot of detail in these arguments that I’m not covering here, eg there’s a distinction between level changes and ongoing economic growth).
The arguments I have outlined are indeed based on value judgments that economic growth is good and unemployment is bad, but applied science is always based on a value judgment (eg “dying of cancer is bad”, “being able to talk to your Mum in another country is good, or at least profitable”, “saving the Chathams Island robin from extinction is good”), and those two value judgments are ones that elected politicians keep making, which means that has been lots of funding for and attention paid to economists who do work on how to create or maintain economic growth and low unemployment. And to the extent that this sort of work attracts civil servants’ and politicians’ attention it attracts media attention, raising its profile relative to say the work of very empirically-focused historical or institutional economists.
I think the reasons that politicians keep favouring economic growth is that it results in rising tax revenues, reducing the need for them to make tough political decisions, such as raising tax rates or cutting funding to politically-popular programmes, or failing to fund their election promises. The reasons for favouring low unemployment are fairly obvious – not only are employed people typically happier, and pay more taxes, but low unemployment allows people to shift jobs more easily, allowing more life-flexibility (eg if both in a couple work). Of course I could be wrong about this and am interested in other hypotheses.

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