“Not even wrong” is not praise

by John Quiggin on August 4, 2011

At one point in Zombie Economics, I tried a Popperian (or maybe Paulian) smackdown, saying that some defenders of EMH used arguments that effectively rendered it unfalsifiable. I thought that was a bad thing, but apparently at least one reviewer disagrees. Following my stoush with Murdoch, a commenter pointed me to this piece by Stephen Williamson of Washington University at St Louis, who has apparently been asked to review the book for the Journal of Economic Literature. Williamson claims that I am badly confused about the EMH, and that

Market efficiency is simply an assumption of rationality. As such it has no implications. If it has no implications, it can’t be wrong.
He follows up with “Like the “efficient markets hypothesis,” DSGE has no implications, and therefore can’t be wrong.””

That’s right, Williamson not only defends the EMH on the basis that it’s not even wrong, but follows up by making the same claim about the whole of modern macro. Those are, quite literally, his only criticisms of these chapters. His commenters (none of whom seem particularly favorably inclined towards me) try to suggest that isn’t the most effective line of attack, but he comprehensively misses the point.

Williamson’s comments on my other chapters aren’t much better. He doesn’t present a single piece of empirical evidence. Responding to my chapter on Trickle Down, his only argument is

On some level, it seems obvious that economic growth benefits all residents of a country. Whatever my skill set, I would rather ply my trade in the United States than in Malawi.
Honestly, my lamest blog commenters can do better than that, and the smae is true his snarky comments on the privatisation chapter.

Williamson does have a good line in personal condescension. St Louis is about as close to the geographical centre of the economics profession as you can get, while Brisbane is about as far away as it gets. So it’s time for a bit of provincial-bashing

What is Quiggin’s claim to fame? His early work is an odd mix of agricultural economics and decision theory, but he seems to have distinguished himself mainly in public policy. He writes regularly in the mainstream media, writes a blog, and Zombie Economics appears to have sold well. Now, what is Quiggin up to in Zombie Economics? Roughly, Quiggin is the Australian farm team in the Krugman/Thoma/DeLong league.

Pursuing the baseball metaphor, I’m reminded of Casey at the Bat, except that, after the defiant eye-gleam and lip-curling sneer, and the bottom-of-the-ninth strike-out, our Casey heads off for a run around the bases in the manner of a home-run hitter.

{ 187 comments }

1

Latro 08.04.11 at 11:43 am

Wow.

So, basically, his defense is that they cant be wrong because they are absolutely useless?

2

Harry 08.04.11 at 11:58 am

Spectacular. My first book was reviewed by one person who read only the first three pages (or rather the review referred only to the first three) and another who gave up half way through and spent most of the review criticising me for holding the view that the book was arguing against. But neither of them was openly deeply confused about the work that they, themselves, have devoted their lives to. The big risk of academic blogging is usually that it will become apparent that you don’t know what you are talking about beyond your area of expertise, not that you reveal that you don’t know what you are talking about it within your area of expertise. Poor chap.

3

Stephan 08.04.11 at 12:02 pm

This seems to be the latest fashion among (New, Quasi, …) monetarists. Sitting themselves in some ivory tower of some obscure college in the US they launch attacks on any idea which doesn’t fit their rigid ideology with dubious arguments (not) like: I’ve never heard of this guy! What celebrity economists is backing this claim? Another rural savage ventures into the economics debate.

Can we please have the old-fashioned argument “but Milton Friedman said …” back?

4

Kevin Donoghue 08.04.11 at 12:17 pm

Harry,

My impression is that Stephen Williamson’s area of expertise is The Economics of Stephen Williamson. His usual line of attack on other economists is that they have failed to follow his methodological precepts.

I think my favourite Williamson post is the one linked below, in which he tells us that Paul Krugman is ignorant of a basic principle of international trade. Where he found the principle in question I’ve no idea, though I did ask.

http://newmonetarism.blogspot.com/2010/09/can-nobel-prize-be-revoked.html

5

ejh 08.04.11 at 12:31 pm

Just to note that you have him as Williams in your first paragraph (on one occasion) and Williamson everywhere else. (Do feel free to delete this comment after correcting, or indeed before, or without.)

Fixed now thanks – JQ

6

The Raven 08.04.11 at 12:42 pm

Wow.

Science is supposed be based on, you know, data?

What do they teach them at these schools?

7

MattF 08.04.11 at 1:10 pm

Perhaps Williamson is claiming to possess a theory that is true, consistent, and complete. Calling Dr. Godel…

8

ivansml 08.04.11 at 1:42 pm

Another key ingredient of modern macro is calculus. However, calculus itself has no implications for the real world, and thus is “not even wrong”. Clearly, then, we should reject derivatives, integrals, optimality conditions and all that as unfalsifiable nonsense.

(sarcasm off)

Williamson is saying that DSGE has no implications because there is no such thing as *the* DSGE model. Once you specify preferences, technology and endowments, you get *a* DSGE model, whose assumptions and implications can be criticized. DSGE is simply a framework to construct models, which can range from “fluctuations are optimal” RBC variety to Keynesian-like models with room for government intervention, to models with financial frictions and linkages between finance and real economy. If you are criticizing DSGE in general, does that mean that you prefer instead static, deterministic, partial equilibrium models? I don’t think that would be a progress.

With EMH, I guess the point is that any test of EMH is a joint test of an asset pricing model as well. In that sense, EMH alone is not testable. But that has been known for at least four decades, so it’s not exactly breaking news.

9

Barry 08.04.11 at 1:43 pm

The Raven 08.04.11 at 12:42 pm

“What do they teach them at these schools?”

It’s clear by now that no matter how much math they teach, and technical stuff, the heart of the economics profession is what a marxist might say – to propagandize.

10

MPAVictoria 08.04.11 at 1:49 pm

“Market efficiency is simply an assumption of rationality. As such it has no implications. “

What a very odd thing to say….

11

Steve Williamson 08.04.11 at 1:51 pm

Hi John,

You’ve missed the point. If you want to engage in serious criticism, you have to be much more specific. If you say you don’t like “the efficient markets hypothesis” or “DSGE” that’s vacuous. For example, Woodford’s models are DSGE, and my models are DSGE, but they have very different implications. Which do you like, and which don’t you like, and why? What your book told me was that you haven’t bothered to study the things you are writing about. The comments about the “farm team” have nothing to do with where you live, but with the derivative nature of the book. I grew up in Cobourg Ontario and live in the American midwest, which are places no one pays attention to.

Steve

12

Nababov 08.04.11 at 2:00 pm

Assumptions always have implications.

13

Aulus Gellius 08.04.11 at 2:07 pm

“the bottom-of-the-ninth at-bat (three strikes looking)”

No, no, no. I suppose this is almost excusable from an Australian, but Casey swings at the third strike. “And now the air is shattered by the force of Casey’s blow.”

D’oh! That’s what happens when you post from memory. I was sure he let all three balls go by. Inexcusable, I agree, but fixed now thanks – JQ

14

ejh 08.04.11 at 2:21 pm

the heart of the economics profession is what a marxist might say – to propagandize

The task of economics
Is to propagate a bluff:
That the poor have too much money
And the rich have not enough.

15

William Timberman 08.04.11 at 2:45 pm

If you accept Newt Gingrich as a historian, and WIlliam Bennett as a moral philosopher, why would you not accept Stephen Williamson as an economist? The Right’s strategy is simple enough: we are TOO entitled to our own facts. What Harvard or Princeton disdains, the American Enterprise Institute or the Peterson Institute is more than happy to supply.

Et voilà, there’s a Stephen Williamson, and a group of seriously, passionately confused citizens with placards everywhere you look.

16

MPAVictoria 08.04.11 at 2:46 pm

ejh that is awesome. Did you write that? I fully intend to steal it at the next opportunity and would like to be able to attribute it correctly.

17

ejh 08.04.11 at 2:46 pm

I’m afraid I did, yes.

18

ejh 08.04.11 at 2:51 pm

19

James Wimberley 08.04.11 at 2:54 pm

Are you sure the review was not by Richard Williamson?

20

Landru 08.04.11 at 3:34 pm

Even among practitioners who think of themselves as left-leaning or technocratic, the entire enterprise of academic economics is rightist propaganda. It suffuses every page of every textbook, shot-through warp and weft. Megan McArdle is Brad DeLong’s daughter, and it’s past time we all admit it.

21

Peter K. 08.04.11 at 3:34 pm

“Roughly, Quiggin is the Australian farm team in the Krugman/Thoma/DeLong league.”

I look forward to buying the book in paperback.

22

Sebastian H 08.04.11 at 3:42 pm

We’re approaching “someone is wrong on the internet” status here. Commenters wanting to draw conclusions about the “Right’s Strategy” might want to notice that he styles himself a “modern monetarist” making him a believer in something akin to the MMT magic, not any current rightish economist theory.

23

Sebastian H 08.04.11 at 3:46 pm

Also, unless I’m reading it wrong he is Canadian.

24

MPAVictoria 08.04.11 at 3:51 pm

“Also, unless I’m reading it wrong he is Canadian.”
Blame Canada?

25

Walt 08.04.11 at 3:57 pm

Sebastian H: What? He’s a freshwater economist who styles himself a follower of Milton Friedman. This has zero to do with MMT.

26

William Timberman 08.04.11 at 3:57 pm

Sebastian, it’s not that such subtleties have escaped my notice, rather that the distinction-without-a-difference factor has overwhelmed my appreciation for the niceties. Honestly, I’m not quite the flaming radical that Landru appears to be, as proof of which I would offer my hope that Prof. Quiggin’s circumspection and ejh’s doggerel may yet engender offspring viable enough to point us to a better future.

27

geo 08.04.11 at 4:07 pm

Maybe Williamson is a Fishian pragmatist (http://opinionator.blogs.nytimes.com/2011/08/01/does-philosophy-matter/) and believes that economics, like philosophy, doesn’t matter:

When it’s not the game of philosophy that is being played, but some other — energy policy, trade policy, debt reduction, military strategy, domestic life — grand philosophical theses like “there are no moral absolutes” or “yes there are” will at best be rhetorical flourishes; they will not be genuine currency or do any decisive work. Believing or disbelieving in moral absolutes is a philosophical position, not a recipe for living. In short, the conclusions reached in philosophical disquisitions do not travel. They do not travel into contexts that are not explicitly philosophical (as seminars, academic journals, and conferences are), and they do not even make their way into the non-philosophical lives of those who hold them. The fact that you might give one set of answers rather than another to standard philosophical questions will say nothing about how you will behave when something other than a point of philosophy is in dispute.

28

William Timberman 08.04.11 at 4:13 pm

geo @ 25

Oy! That Fish! He’s the kind of Fish, it seems to me, that one mafioso might send to another to announce events of (no) great import.

29

Sebastian H 08.04.11 at 4:17 pm

My points are that he:

A) is essentially a crazy nobody with a university position, there are lots of those;
B) we don’t know much about him, but he doesn’t appear to be a standard variety of US right-wing economist;
C) (though I didn’t make this one before) haven’t we recently had multiple posts on the dangers of ascribing crazy people to large groups (i.e. Muslims) without good proof?

Insofar as the point of the post is that people with apparently undeveloped writing/thinking skills exist in disturbingly high positions in modern universities, I agree.

Insofar as the point of the post is that someone that almost no one has ever heard of and that almost no one will ever think about again after this week has written a stupid review of JQ’s book, I agree.

30

Steve Williamson 08.04.11 at 4:19 pm

William,

Why are you putting me on the right wing? Like all people who grew up in Canada, I’m a socialist, and have never voted Republican in my life (or expect to).

Steve

31

Walt 08.04.11 at 4:22 pm

Sebastian H, he’s at one of the top economics programs in the US, he got his Ph.D. from one of the top economics programs in the US, and he has a high-profile economics blog.

32

William Timberman 08.04.11 at 4:25 pm

Yeah, Sebastian, but even those — your A) — who don’t know which side their bread is buttered on, or aren’t sufficiently orthodox to snag a gig from the usual suspects, are part of the great flux over the nearest historical precipice. Or so Gramsci would tell you.

33

Henry 08.04.11 at 4:35 pm

WUSTL is a quite well known, if sometimes rather odd economics program. It has Doug North, who is good value, and a couple of other rather less distinguished institutional economics people. Also, quite a lot of money – well-sourced rumors suggest that it ‘s paying well in excess of 500k per year for David K. Levine, who has some interesting ideas about intellectual property (but, by my estimation, not >500k worth of interesting ideas about intellectual property).

People may not have seen that he’s popped up in the comments queue at #11 (John is presumably asleep, so I freed him from moderation). Contra his claim, the “farm team” jibe seemed to me to be a quite clear suggestion that because Williamson hasn’t heard of him, he’s some odd class of agricultural-economist-nobody who’s only gotten attention by pinch-hitting for the big boys when they can’t be arsed to get on the field themselves. But that Williamson hasn’t heard of him says rather more about Williamson than about Quiggin, if my occasional conversations with economists who know nothing about Quiggin’s policy persona, but are highly enthusiastic about his theoretical contributions, are anything to go by.

34

Sebastian H 08.04.11 at 4:35 pm

MarginalRevolution is a high profile economics blog. Calculated Risk is a high profile economics blog. Half Sigma is a high profile economics blog. Hell Megan McCardle has a high profile economics blog. Billyblog is a sort of high profile economics blog. Stephen Williamson: New Monetarist Economics is not a high profile economics blog. I couldn’t find him highly ranked on any of the rankings systems. In fact I couldn’t find him ranked at all on any of the ranking systems (though the only one I would expect to track someone so small is TruthLaidBear which is currently having some sort of database error).

35

Kevin Donoghue 08.04.11 at 4:36 pm

Sebastian,

Stephen Williamson certainly isn’t “a believer in something akin to the MMT magic” or anything remotely like it. This (admittedly hostile) post by Tim Duy will give you a better idea where he stands.

36

Kevin Donoghue 08.04.11 at 4:43 pm

Actually I think John Quiggin really ought to embrace the portrayal of him as the Crocodile Dundee of the economics profession. Perhaps wear a floppy hat with corks dangling from it.

37

P O'Neill 08.04.11 at 4:45 pm

A real put-down would have tried to work a Luc Longley-Michael Jordan analogy in there somewhere.

38

William Timberman 08.04.11 at 4:49 pm

SW @ 30

To be fair, 1) I’m not an economist, and 2) all I’ve read of your work at this point is the blog post in question here. That said, I think I have a right to wonder what sort of socialist could have written what you wrote in that post. Unfortunately, I’m off to another town for the day, and can’t take the time to make the details of my wondering public at the moment, but since I think you deserve to hear them, I’ll do my best to provide them later in the day.

39

bourbaki 08.04.11 at 4:49 pm

@7

There is nothing contradictory with such a theory…you just can’t formulate arithmetic using it.

Evidence suggests that this may be true of lots of economic theories (and yes I know Megan McCardle isn’t an economist and just plays one on the internet).

40

Walt 08.04.11 at 4:51 pm

Really? I find myself following links to his blog every couple of weeks or so. Though I’ve never heard of Half Sigma until this second, so maybe my view is skewed.

41

Walt 08.04.11 at 4:52 pm

Christ, that Half Sigma blog is stupid. Maybe I don’t want to know what’s actually high-profile.

42

Colin Danby 08.04.11 at 4:52 pm

Has anyone else had the experience of trying to explain mainstream econ to non-econ colleagues, and they just can’t believe it’s so flimsy? This might be useful.

I have a vague memory, from one of these bloggy things over the last year, of a StephenWilliamson-like person saying there’s economic theory, and then there are many possible real worlds, and if the one we live in doesn’t quite measure up to the theory, so much the worse for it. Anyone else remember this?

43

geo 08.04.11 at 4:58 pm

there are many possible real worlds, and if the one we live in doesn’t quite measure up to the theory, so much the worse for it

This just in from the cosmologists: there an infinite number of actual real worlds, and if the theory doesn’t quite measure up to the world we live in, it does in an infinite number of other worlds.

44

Josh G. 08.04.11 at 4:59 pm

John Quiggin: “That’s right, Williamson not only defends the EMH on the basis that it’s not even wrong, but follows up by making the same claim about the whole of modern macro.

This makes perfect sense if you understand that right-wing economics is fundamentally not a science, but a religion. Williamson is complaining that you’re not respecting the non-overlapping magisteria principle.

45

yeliabmit 08.04.11 at 5:32 pm

S. Williamson: “Like all people who grew up in Canada, I’m a socialist…”

And there’s the whistle! 2 minutes in the penalty box! Claiming to be Canadian as evidence of socialist cred works only among Americans whose understanding of Canada ends at our health care system.

I grew up in Canada, and am still here. Many people who grew up in Canada are not socialists, and anyone who had even glanced at the current Canadian political environment would recognize this. Granted, some people in Canada are socialists but don’t realize that they’re socialists. But that could be said about many places.

46

BertCT 08.04.11 at 5:47 pm

“On some level, it seems obvious that economic growth benefits all residents of a country.”
Except it doesn’t. Just ask most Americans, who’ve barely seen zero-growth in real wages, and that’s been obliterated by debt.

On some level, it seems obvious that the world is flat.
Except it’s not.

47

Nine 08.04.11 at 5:58 pm

“Like all people who grew up in Canada, I’m a socialist”

Eh, what ? Is that an obscure “all internet traditions” style joke ?

48

Greg Ransom 08.04.11 at 5:59 pm

Hayek forced Popper to concede that his “falsifiability” criterion of science had been falsified. See Popper’s autobiography and Hayek’s papers “The Theory of Complex Phenomena” and “Degrees of Explanation”.

One can offer alternative, contingent causal mechanisms to explain complex phenomena which are not “falsifiable” in any useful sense.

The opposite of “vacuously tautological” is NOT “falsifiable”.

Re the EMH”: Williamson is demonstrably incompetent when it comes to many literatures in economic science, including the contemporary history of economic thought,

49

Anon 08.04.11 at 6:04 pm

Pretty disappointing that so many commentators are piling on when #8 & #11 need to be addressed before anymore internet high fives are handed out by the home team.

50

Greg Ransom 08.04.11 at 6:04 pm

An economist who is only an economist is an incompetent economist — Stephen Williamson proves this in spades.

Williamson has no understanding whatsoever of how to provide a causal explanations, or how it might be possible use a tautology to help with understanding causal phenomena in the social realm.

Williamson is the poster boy of the complete failure of contemporary economics to produce a non-pathological explanatory strategy. A tautological equilibrium math construct cannot provide a contingent causal explanation and doesn’t provide a contingent causal mechanism. See Hayek 1937, 1941, 1945, 1946, 1955, 1962, etc., etc.

51

Unsympathetic 08.04.11 at 6:52 pm

If Williamson had half the smarts he thinks he has, he wouldn’t be at the Washington University at St Louis.

The conclusions of EMH regarding consumer rationality function only after you start with the assumption of full employment. He’s got zero ideas for any possible world where full employment does not exist – also known as the one we find ourselves in currently. Oops.

Also, the EMH assumes all information about financial products is available to all participants at all times. Sold to him.

Yes, EMH is a good starting point for understanding the world. Similarly, in physics, we start by assuming a horse is a sphere, because equations that create a sphere are easy to understand.

52

ScentOfViolets 08.04.11 at 7:29 pm

At one point in Zombie Economics, I tried a Popperian (or maybe Paulian) smackdown, saying that some defenders of EMH used arguments that effectively rendered it unfalsifiable. I thought that was a bad thing, but apparently at least one reviewer disagrees. Following my stoush with Murdoch, a commenter pointed me to this piece by Stephen Williamson of Washington University at St Louis, who has apparently been asked to review the book for the Journal of Economic Literature. Williamson claims that I am badly confused about the EMH, and that

What!?!?!? You mean a theory really does have to be falsifiable? That it really has to make testable (and hopefully useful) predictions?

Quelle surprise. As a sorting mechanism, it would be really nice if people would explicitly say up front whether or not they endorse this idea. I get the impression that for a lot of folks this feature of the scientific method is very useful if the facts and theorizing support their side . . . but can be conveniently ignored if not.

That’s right, Williamson not only defends the EMH on the basis that it’s not even wrong, but follows up by making the same claim about the whole of modern macro. Those are, quite literally, his only criticisms of these chapters. His commenters (none of whom seem particularly favorably inclined towards me) try to suggest that isn’t the most effective line of attack, but he comprehensively misses the point.

About four election cycles back we had a candidate running on the platform that local developers didn’t get enough input into city planning policy, and that if she was elected to the city council, she would try to change that.

And you know, she got a lot of letters in the local rag praising her for being honest and up front. Even from known lefty characters. Of course, on election day, she lost to her opponent by an embarrassing fifty plus percentage points.

The point here being that this is the sort of thing which is very much a 21st century sort of debate.

53

ScentOfViolets 08.04.11 at 7:45 pm

“That’s right, Williamson not only defends the EMH on the basis that it’s not even wrong, but follows up by making the same claim about the whole of modern macro.”

This makes perfect sense if you understand that right-wing economics is fundamentally not a science, but a religion. Williamson is complaining that you’re not respecting the non-overlapping magisteria principle.

Or if you think of it as some sort of mathematical construct or game that’s being played with certain a priori assumptions built in.

The problem is, this is then used as a very inappropriate model for the real world. Mistaking the map for the territory, to put it into rather quaint 20-century terms. Heh, maybe “Economics – the Game!” might be some sort of marketable product; a sort of revved-up Monopoly for people who like to play cutthroat and with plenty of time on their hands.

54

Sergei 08.04.11 at 8:06 pm

He also wrote a book. A text book. On macroeconomics.
Amazon rates it 3.2 starts with six 5s and six 1s.

55

fgw 08.04.11 at 8:06 pm

“If it has no implications, it can’t be wrong.”
Too bad having sex can have implications, otherwise…

56

Roger 08.04.11 at 11:10 pm

Unsympathetic – Wash U is an outstanding institution in many respects. I have no idea what its standing is in Physics (nor in Econ) but as an undergraduate institution, its on par with the Ivies. In biomedical research, its one of the leading institutions in the US.

57

John Quiggin 08.04.11 at 11:39 pm

I can confirm Wash U Econ is very well regarded, and Levine an exceptionally sharp guy. Still, and assuming market-clearing prices, a salary of $500k must be offsetting a fair bit of negative amenity value relative to the general market price for sharp economists :-).

58

William Timberman 08.05.11 at 12:48 am

Okay, Professor Williamson, I’m back, and as promised, here are the reasons for my (mis?)taking your criticism of Zombie Economics for a right-wing polemic:

1. You open with a long, folksy name-dropping preamble, David Brooks-style, the point of which seems to be something like: He may be the Wizard of Oz, but I never heard of him.

2. Then you double-down with that Australian farm team… crack, which sounds very like the sort of snottiness that Henry Luce once learned from The Economist, and practiced thereafter with precisely the sort of patrician verve that has distinguished the economic arguments of the Right in this country for more decades than I’ve been alive.

3. Once you arrive at the substance of your criticism, your complaint seems to be that Professor Quiggin has attacked mathematical models which are, after all, simple value-free analytical tools. What you neglect to mention is that his complaint is actually about the uses to which those tools have been put by people who pretend to have no axes of their own to grind other than the maximum efficiency of the capital placed in their charge. Recent events have shown, however, that this pretense is at best a disingenuous abdication of responsibility for some pretty awful consequences, and at worst a self-serving lie.

4. You’d rather ply your trade in the U.S. than in Malawi. So would many who will never get the chance. You’ve never heard of imperialism, I take it.

5. This is priceless:

If I wanted to, I could take this evidence as supporting the hypothesis that government is really bad – so bad that it can even screw up privatization.

So could Newt Gingrich, Arthur Laffer, Mitch McConnell, etc. I doubt anyone to the Left of Dwight Eisenhower would — or could — take it that way.

6. And finally, this:

It’s unfortunate that some of the people who write so much about economics for the general public spend so little time reading about what economists actually do, and attempting to understand it.

Indeed it is. Fortunately for us, Professor Quiggin isn’t one of them.

59

Joe 08.05.11 at 12:51 am

in support of 48: non-falsifiable is indeed not necessarily the same thing as useless. There’s an argument out there–we get this occasionally in political science, or at least in IR–according to which rat choice modes are not and should not be bases for empirical testing. Rather, they are Weberian ideal types, rightly regarded as heuristics. Their purpose is not to be true so much as to be useful. Thus, they don’t get falsified so much as shown to need tinkering.

Of course modern economic science, as little I understand it, doesn’t seem to buy this approach. It seems, rather, to be long on statistical hypothesis testing. So, if indeed economic science is a Popperian enterprise, it does need to supply testable claims. A role it seems to have just rather unexpected abdicated.

What I didn’t know was that Hayek had a horse in this race. Let alone that one. Learn something every day…

60

John Quiggin 08.05.11 at 1:47 am

#8,#11,#49 I’m outsourcing the full-length reply to Noahpinion here
http://noahpinionblog.blogspot.com/2011/08/in-which-john-quiggin-intellectually.html

High fives all round!

61

Bruce Wilder 08.05.11 at 1:57 am

I’m pretty disappointed in this post and the comment thread. Anon @49 has a point (as did ivansml @8), and insofar as I understand him, so does Greg Ransom @48. I’m sure there were others, but we don’t seem, as a group, to have to grips with this. The Principals, Quiggin and Williamson, seem determined to talk past each other, without engaging.

Analytical theories, in general, do not have implications. This is as true of economics as in any other field. Popper’s falsifiability presumed an extension from pure theory, via operationalization, to some . . . well, hypotheses. And, the Efficient Markets Hypothesis is such an operationalization; that word “hypothesis” might serve as a clue. As another commenter pointed out, the Wikipedia entry is pretty good on the history of the idea.

This is hardly unusual in economics. The basic theory of market price has no implications, either. If price increases, theory does not say whether quantity demanded increases or decreases, in response. As a matter of theory, either response might be the case. (Traditionally, many economists have introduced hoary auxiliary hypotheses, such as the so-called Law of Diminishing Returns, in order to get implications; that’s a ‘nother tale of malfeasance.)

Personally, I think Popper may have done us a disservice, by insisting that science “test” the theory, instead of simply trying to discover what is, in fact, the case, which is to say, to test the world. This false metaphor of theory as a map begins all kinds of confusion.

As a technical matter, in financial economics, EMH is an important concept, in an important line of thought.

On the other hand, Quiggin is certainly not wrong: the EMH has been transmuted, as if by a bite from undead Chicago economists, into a zombie idea. Somehow, some economists (and I’m not saying Williamson is one) take it as rationalization for ignorance of the economy. Instead of asking, what is the case?, how efficient is this particular market?, what are the institutional features, which make a market efficient?, they declare that all markets are efficient, and the EMH is trotted out as a kind of impossibility theorem: “no one could possibly spot an asset bubble, ever!”

The technical idea is an important concept, but I’m afraid the zombie idea has been far more consequential to date. I call it for Quiggin, on points. But, not a great game, really.

62

Herman 08.05.11 at 2:14 am

One thing about Williamson and Levine ( and also Fama) is that they were trained as mathematicians. Consequently they seem to be rather clueless about empiricism, and seem to believe that one can understand reality by pure thought. Another quirk seems to be the confusing of tautologies with causal explanations. Fama, for example, has spent almost his entire career talking in tautologies, and it was no surprise when he made an ass of himself by claiming to deduce implications for fiscal policy using a NIPA accounting identity.

@ivansml:
” If you are criticizing DSGE in general, does that mean that you prefer instead static, deterministic, partial equilibrium models? I don’t think that would be a progress.”

Eh? Most certainly not.
See this piece by James Morley of Macroadvisers. The criticism is both general and specific – he considers Smets-Wouters .

On the calculus analogy: Do you even understand the difference between mathematics and science ( or social science). Are you defending macro by claiming it is a branch of mathematics?

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William Timberman 08.05.11 at 2:22 am

BW @ 61

In the General Theory, if I remember correctly, Keynes has this rather remarkable discursive passage about the limits of mathematical analysis in very complex situations — not being sure which side of the equation to lock down, puzzling over which are the independent and which the dependent variables, etc. No doubt stochastic methods have helped a great deal in easing the tensions involved in constructing models for an otherwise intractable complexity, but I still think that Keynes was generally correct in warning that magicians who are seduced by the sheer elegance of their magic are truly dangerous, especially when they begin to doubt the real existence of the uninitiated.

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warai otoko 08.05.11 at 2:40 am

@61

That was pretty helpful. But isn’t the problem here that Williamson’s critique isn’t particularly clear? Going from the comment “Market efficiency is simply an assumption of rationality. As such it has no implications. If it has no implications, it can’t be wrong” to the elucidation you offered is quite difficult(at least I didn’t find the way before you pointed to it); there are many different theories about scientific method, how should I know that Williamson prefer one where “theory” is a thing without implication? I am even inclined to think that someone saying that probably does not mean the same thing that I mean with the word “implication” (since everything implicates itself). Perhaps he means that it can’t be shown to be wrong because it doesn’t implicate anything else (or something which is observable to be true or false), not that the theory can’t be false because it has no implications. But why should I as a reader have to do all this boring interpretive work when I could be playing EU3 instead?

This is the problem with Williamson’s critique: it is to short to be a critique. Perhaps that explains why the responses it has gotten on this and other blogs have been derisive. Vague short statements do not encourage charitable interpretations, neither do polemical texts on the internet.

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critical tinkerer 08.05.11 at 2:56 am

W. Timberman
So could Newt Gingrich, Arthur Laffer, Mitch McConnell, etc. I doubt anyone to the Left of Dwight Eisenhower would—or could—take it that way.

I am a leftie and i take it that way, except using double “that”. That that specific government is bad, so bad that produced a need for privatization in order to get out of mess they created. Actually i take it that it is so bad that made a privatization as its goal, not a mean to the end. Privatization as giving away assets for cheap (at firesale levels). Cheap, since while in governmental hands it did not seek profit while having a monopoly. After sale the profit is found by raising prices or firing workers.

SW is assuming that one government bad means all government is bad. Just as other right-wing religious assumptions equals to 1=& (infinity). Such as: one Muslim terrorist= all Muslims are terrorists. This points to lack of logic abilities.

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PHB 08.05.11 at 3:00 am

Williamson seems unable to grasp that the criticism being made does actually apply to the whole approach.

Market Efficiency, Rational choice etc. are useful abstractions that can in certain circumstances provide models that correlate well with reality I don’t think anyone seriously doubts that fact.

What rational people do however object to is the claim that Market Efficiency and Rational Choice etc are inviolate principles of the universe. Markets are not theoretically efficient and humans are not rational choice actors or even close to being so.

In fact decades of psychological research in my specialty (computer security) demonstrates that humans are exceptionally bad at evaluating risks and taking appropriate measures. Thus $80 billion spent last year in the US attempting to prevent terrorist attack (average number of deaths per year since 9/11, in the hundreds) when a fraction of that money spent on preventing road deaths, reducing obesity, medical research or pretty much anything else would have vastly better returns.

Rat Choice is a demonstrably false and useless model of human behavior when considering how people evaluate and accept risk. However it works pretty well in other parts of the field, for example estimating likely prospects for deployment since in those cases the defects of the model tend to cancel each other out and in any case the models themselves are pretty rough.

So what is being attacked here is not the use of a particular modeling tool. What is being attacked is the religious devotion to an idea as a perfect and immutable law of economics the truth of which is only disputed by idiots and fools of no reputation or credibility.

Making an idea an axiom does not make it beyond dispute. If the axiom falls then so do all the conclusions that are drawn from it. The laws of mechanics allow me to predict the motion of a ‘solid’ object moving in an Newtonian universe but we know for a fact that what we perceive as ‘solid’ objects are actually anything but, they are associations of quantum particles moving in a universe that is quite definitely not Newtonian.

People do the same thing equating Pareto optimal with the desired outcome. A comforting approach for people whose objective is to perpetuate the status quo, to be sure.

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Kieran 08.05.11 at 3:18 am

St Louis is about as close to the geographical centre of the economics profession as you can get

Being close to the geographical center of the economics profession means you’re right at the intellectual center of the field in much the same way that being at the geographical center of the U.S. population means you’re right where the best restaurants, clubs and bars are.

(Yes, yes, I know Wash U has a well-regarded department and all, which they’ve been investing heavily in over the past decade. Still.)

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Herman 08.05.11 at 3:51 am

@PHB
You get to the heart of the matter.
The fundamental problem with Williamson (and Levine, and Lucas, and Prescott, and Sargent) is that they believe that Rational Choice Theory is sufficient to explain all human behaviour. And therefore, macro should only be studied in a rational choice framework. No other framework is allowed. And this is believed based not on empirical evidence, but pure faith.

@Bruce Wilder,
While you are undoubtedly correct in your implication ( if I read you correctly) that DSGE is a framework and therefore cannot by itself have any implications for the real world, the problem is the convergence on a particular approach as the only valid approach.

Here is Ricardo Caballero (MIT):
If we were to stop there, and simply use these stylized structures as just one more tool to understand a piece of the complex problem, and to explore some potentially perverse general equilibrium effect which could affect the insights isolated in the periphery, then I would be fine with it. My problems start when these structures are given life on their own, and researchers choose to “take the model seriously” (a statement that signals the time to leave a seminar, for it is always followed by a sequence of naive and surreal claims).

The quantitative implications of this core approach, which are built on supposedly “micro-founded” calibrations of key parameters, are definitely on the surreal side. Take for example the preferred “microfoundation” of the supply of capital in the workhorse models of the core approach. A key parameter to calibrate in these models is the intertemporal substitution elasticity of a representative agent, which is to be estimated from micro-data. A whole literature develops around this estimation, which narrows the parameter to certain values, which are then to be used and honored by anyone wanting to say something about “modern” macroeconomics. This parameter may be a reasonable estimate for an individual agent facing a specific micro decision, but what does it have to do with the aggregate? What happened with the role of Chinese bureaucrats, Gulf autocrats, and the like, in the supply of capital? A typical answer is not to worry about it, because this is all “as if.” But then, why do we call this strategy microfoundations rather than reduced-form?

My point is that by some strange herding process the core of macroeconomics seems to transform things that may have been useful modeling short-cuts into a part of a new and artificial “reality,” and now suddenly everyone uses the same language, which in the next iteration gets confused with, and eventually replaces, reality. Along the way, this process of make-believe substitution raises our presumption of knowledge about the workings of a complex economy, and increases the risks of a “pretense of knowledge” about which Hayek warned us.

http://pubs.aeaweb.org/doi/pdf/10.1257/jep.24.4.85

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JasonSL 08.05.11 at 3:59 am

Bruce @61 makes good points — I was disappointed that no one addressed Ivansml’s point @8. I think we need to distinguish statements about the world, whether from assumption or from conclusion, from techniques. Williamson and Ivansml argue that DGSE broadly is a technique, and thus no more subject to falsification than, say, Markov chains, molecular dynamics, or PCR. It makes sense to argue about the applicability of these techniques to particular problems or even to whole fields, and about how likely these techniques are to lead one to accurate conclusions about the world, but it is a category error to argue about whether the techniques themselves are “true”.

I’m not an economist, so I don’t know whether “DGSE” is often used to refer to the technique DGSE as well as some common assumptions (factive statements). If so, then this technique+factive_claim DGSE is indeed subject to falsification (or, to be Bayesian about it, non-unity likelihood ratios).

I get the feeling that Quiggin is attacking technique+factive_claim DGSE, and Williamson is defending technique DGSE. I would like to see Williamson defend technique+factive_claim DGSE, and Quiggin attack technique DGSE.

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Lemuel Pitkin 08.05.11 at 5:47 am

If Williamson had half the smarts he thinks he has, he wouldn’t be at the Washington University at St Louis.

Hyman Minsky spent most of his career there. And the very smart sorta-Post Keynesian Steve Fazzari is, or was until recently, chair of the economics department. So their record on non-zombie economics looks pretty good. I guess the place has changed tho – one of those efforts to move up the rankings by spending lots of money to recruit second-tier people from top tier schools.

Re DSGE, it’s clear that these models are not useful for answering any interesting questions about actual economies. Nor, despite the name, do they actually incorporate any kind of general equilibrium. Cosma Shalizi has an excellent brief overview, with links to longer critiques, here. I’m not sure the uselessness of DSGE models is really captured by saying they’re unfalsifiable. On the other hand, I haven’t read the relevant chapter of John Q.’s book; he probably has more to say about them than that.

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John Quiggin 08.05.11 at 5:50 am

On EMH, I think Bruce is just wrong. As he notes, the word “hypothesis” indicates a factual claim that financial markets give the best possible valuation of any asset conditional on some information set (different ones for weak, semi-strong and strong). It’s not just a rationality postulate which, as I’ve said many times myself, is empty without additional content.

On DSGE, I spend a fair bit of the chapter in question attacking the technique, as well as those factual claims which, I suggest, are implicit in the use of the technique (eg that actual outcomes are within one or two modifications of the optimal DSGE derived when consumers are perfectly rational and markets are perfectly competitive).

Since Williamson says literally nothing about what is actually in the book, I think Bruce should have looked at it before responding in the way he did.

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Lemuel Pitkin 08.05.11 at 5:54 am

And what’s the alternative? Structuralist models that describe relationships between aggregates directly and don’t waste time with fake microfoundations.

And they are fake. Making consumption, say, the result of intertemporal optimizing by a single representative agent, as DSGE-type models do, gets you no closer to the microstructure of the economy than just saying aggregate consumption is a function of aggregate income and leaving it at that.

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John Quiggin 08.05.11 at 6:18 am

I agree that the microfoundations of DSGE-type models are fake, but I think there is merit in an agenda that works at three levels
(a) individual behavior
(b) social phenomena like trust, confidence etc
(c) aggregate equilibrium and disequilibrium
Of course, it’s much easier to propose this agenda than to implement it

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Greg Ransom 08.05.11 at 7:36 am

The existence of rival explanatory systems with incommensurable entities and conceptions was shown by Kuhn to refute Popper’s deductivist paradigm of “science” married to his “falsifiability” criterion of “science”.

But Hayek had shown the same earlier, using various examples of the explanation of complex phenomena, where the achievement is the explanation of complex patterns, and where no particular predictions at particular points in space and time are made.

Popper conceded Hayek’s counter-example against the “falsifiability” criterion of “science” — there were explanatory sciences like Darwinian biology which provided a contingent causal mechanism with tremendous explanatory power, but without the capacity or aim to provide particular “falsifiable” predictions of particular events at particular points in space and time.

Any who demands “falsifypiability” or “testability” as a criterion of “science” or explanatory power is a crackpot. He isn’t a scientist or any ally of science. He’s a fraud attempting to enforced bad & failed philosophy.

Unfortunately, this is what many economists are — they are enforcers of failed & incompetent philosophy and they are not scientists.

I note that Williamson first learned his fraudulent / fake image of “science” directly from Lipsey’s textbook of the 1960s which claimed that “positive science” was defined according to a “testability” criterion, a fake picture of “science” which woukd rule out Darwin, and which doesn’t pass the smell test in the wake of what Kuhn explains about rival explanatory systems.

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Greg Ransom 08.05.11 at 7:53 am

Kant demanded that science must come in mathematical formalism — that’s philosophy and a stipulation from a philosopher .. it is also Stephen Williamson’s demand.

Note well, neither science nor causal explanation make this demand.

When Williamson is demanding that science must come in mathematical form, he iphas his Kant hat on, he’s being philosophical in the worst sense, and he isn’t being scientific at all.

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Greg Ransom 08.05.11 at 8:00 am

Learning — conceiving thing never before conceived and understanding things never before understood — takes one outside of the stipulated givens of any formalism or math equation or deductive system.

That ultimately, is the point Kuhn made in his crushing of Popper, and Wittgenstein made in his crushing of Russell, Carnap, Plato & Frege.

And it is the point Hayek made against mathematical equilibrium economics in his landmark 1945 paper “The Use of Knowledge in Society” and associated papers and books.

Entrepreneurial learning in the context of changing local conditions and price relations is the central causal explanatory mechansim in economics — and it cannot be capture in an stipulated math equation or stipulated “given” historical empirical data set.

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Greg Ransom 08.05.11 at 8:10 am

Learning gives you causation and a causal explanatory mechanism explaining relative econ order — and systematic failures of learning explain systematic failures of order.

Math equations and tautological definitions and econometric data manipulations do not give you causation or causal explanatory mechanisms involving theminteractions of human learners. They might help us identify ormhave insight into patterns, but they don’t provide the causation which is provided by human learners adapting in an open-ended fashion in unique local environments with uniquely changing and future oriented relative prices.

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Greg Ransom 08.05.11 at 8:15 am

Contra Quiggin, we aren’t interested in individual “behavior” — which can be explained by a stipulated or “given” set of belief & desire states and a bit of stipulated math and logic.

We are interested in learners — going outside of any stipulated or “given” set of beliefs and desires connected by math and logic.

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ivansml 08.05.11 at 8:23 am

@Herman:

What I’m saying is that just like calculus, DSGE is a tool that can be used and extended in many ways. And actually one of those extensions is relaxing rational expectations – there are models where some consumers are “hand-to-mouth” instead of rational intertemporal optimizers, there are models with learning (where agents form their expectations by running regressions on past data), or with ambiguity (where agents fear of model misspecification and choose their policies in robust way). Regarding last two points, you might check out Sargent’s recent work – he is clearly interested in studying the foundations for rational expectations. Sargent even visited Santa Fe Institute in the past and wrote (with Marimon and McGrattan) a paper on an agent-based model. Doesn’t seem like pure faith in RE to me.

Going back to criticism of DSGE, usually you don’t criticize tools, but their applications – criticizing some specifics (e.g. that DSGE models didn’t predict the crisis, that they use representative agent, that they imply optimality of fluctuations, etc.) may very well be correct, but still doesn’t justify that the whole concept should be rejected. Now, I could imagine that someone rejects the whole idea of DSGE, e.g. because he rejects standard concepts of utility maximization and general equilibrium, just like some people (such as Austrian school of economics) reject use of calculus because they consider continuity and differentiability unrealistic assumptions. But I don’t think that’s what this debate is about.

Are there alternatives to DSGE models in macroeconomics? Maybe there are, and if they prove useful I personally have no problems with that. However, nonconstructive and shallow criticism will not help us find them, that’s for sure.

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John Quiggin 08.05.11 at 9:56 am

@ivanmsl – have you read the relevant chapter of my book?

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Herman 08.05.11 at 10:15 am

@ivansml

You probably missed my second comment above (No. 68).

I agree with your point about DSGEs being tools and provide links to three papers below that criticize the way they are used. However, I still reject your calculus analogy. Unlike calculus, DSGEs are not some general purpose mathematical tools. Modeling a macroeconomy is their sole purpose. And one can legitimately criticize them on the grounds that they are a restricted version of a dynamic Arrow-Debreu GET and that this version of GET is not the right framework for studying real world macro. In fact, a virtual who’s who of general equilibrium theorists have made exactly this criticism. They include Kenneth Arrow, Alan Kirman, Franklin Fisher and Frank Hahn, among others.

Detailed criticisms of various specific issues with DSGE models:

1. Macroeconomics after the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome
Ricardo Caballero
http://pubs.aeaweb.org/doi/pdf/10.1257/jep.24.4.85

2. The Emperor Has No Clothes
James Morley
http://macroadvisers.blogspot.com/2010/06/emperor-has-no-clothes-ma-on-state-of.html

3. The State of Macro
Olivier Blanchard
http://ssrn.com/abstract=1235536

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stostosto 08.05.11 at 11:20 am

@ejh, #14: A born classic! And as they say: It’s funny because it’s true.

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Keith M Ellis 08.05.11 at 1:53 pm

This has been, with almost no exceptions, a very sorry discussion. Williamson set a tone, it seems, in his stupid “farm team” quip, and then commenters here have followed suit, making all sorts of similarly egregiously uninformed assertions about Washington University and academic economics, in general.

And while I certainly don’t agree with everything Greg Ransom writes, Quiggin’s appeal to Popperian falsifiability as some sort of authoritative slam-dunk philosophy of science criticism of a science qua science is also uninformed.

Williamson’s assertion that Quiggin simply doesn’t know anything about what he was writing of in his book is also uninformed, which is evident to even non-economists who have followed Quiggin’s work and public writings and the commentary about them by other economists. That book is the most publicly-written and work-in-progress publicly-critiqued book I know of.

Going out of one’s way to be insulting in a manner that appeals to an authority while revealing ignorance is a theme here, from all directions.

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liberal 08.05.11 at 1:53 pm

#74:

there were explanatory sciences like Darwinian biology which provided a contingent causal mechanism with tremendous explanatory power, but without the capacity or aim to provide particular “falsifiable” predictions of particular events at particular points in space and time

On the whole, Darwinian biology indeed doesn’t have the aim of providing falsifiable predictions (at least AFAICT), but it itself is falsifiable.

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ScentOfViolets 08.05.11 at 2:23 pm

And while I certainly don’t agree with everything Greg Ransom writes, Quiggin’s appeal to Popperian falsifiability as some sort of authoritative slam-dunk philosophy of science criticism of a science qua science is also uninformed.

Really? Why? I’d have to say that’s the way everyone I know (scientists) operate. Are you saying they’re doing it wrong?

On the whole, Darwinian biology indeed doesn’t have the aim of providing falsifiable predictions (at least AFAICT), but it itself is falsifiable.

Of course it does. Among other things, kittens won’t hatch out of chicken eggs. Greg’s criticisms sound like much recycled and very stale arguments from going on a century ago.

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ivansml 08.05.11 at 2:27 pm

@John Quiggin:
Not before, but now I’ve found a copy and skimmed quickly through that chapter. It reminded me of Krugman newspaper writings – well written with nice and captivating story, yet bit light on actual arguments and specifics (but maybe that’s necessary in popular writing), and I didn’t find anything in particular that would change my opinion. Do you have something specific from that chapter in mind?

@Herman
So if macroeconomists use inappropriate versions of GE, then maybe the solution is to introduce appropriate version of GE. If you want models with multiple goods and sectors, or heterogeneous consumers, or incomplete markets, or whatever, I’m sure you could find at least some recent research in that direction. You know, macroeconomists didn’t spend last three decades worshipping Kydland & Prescott (1982).

I saw papers that you linked to – Morley provides some relevant, but specific criticisms. Caballero points to some interesting research, but his main point is basically “There are DSGE models which ignore X and there are other models which explain X, but no we cannot combine them because that wouldn’t work. Why? Because I and Hayek say so.” Not very helpful in my opinion.

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liberal 08.05.11 at 2:36 pm

Henry #33:

Also, quite a lot of money – well-sourced rumors suggest that it ’s paying well in excess of 500k per year for David K. Levine, who has some interesting ideas about intellectual property (but, by my estimation, not >500k worth of interesting ideas about intellectual property).

Nah. From a quick perusal, sounds like he’s pretty much against so-called intellectual property, and pushes that hard. As such he’s worth every penny of that $500K. In fact, I’m surprised that someone who agitates against the rent-collecting scum could attract a salary anything like that.

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liberal 08.05.11 at 2:39 pm

ScentOfVioletswrote,

Greg’s criticisms sound like much recycled and very stale arguments from going on a century ago.

I’d be interested in hearing more. I don’t know enough details to judge Greg’s posts on their own, though of course you’re right that Darwinism is falsifiable per se.

Aside: on those infrequent occasions I come to this blog, I enjoy your comments.

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warai otoko 08.05.11 at 2:45 pm

@85

The Popperian idea of falsifiability is unjustly popular in outside of academic philosophy. The popularity it enjoyed for a time in the philosophy of science more or less came to an end with Lakatos in the 70s (or perhaps even earlier), but for some reason it has a life outside of philosophy still (it’s a zombie-idea). The basic reason it isn’t that popular anymore is that the concept (i.e. falsification) Popper used relied on a logical quirk about universal laws: universal laws cannot be deducted from a finite set of observational statements (no matter how many white swans you observe, it will never imply the proposition that all swans are white), however universal laws can be falsified by a single observational statement (“all swans are white” can be shown to be false by the truth of “one swan is black”). Looking more closely at this it becomes obvious that this isn’t going to cut it, for a number of different reasons. The most famous being the so called Quine-Duhem thesis that it is impossible to conclusively falsify any theory. But without conclusive falsification there isn’t much left of the Popperian falsification concept. Therefor there will be no slam-dunk arguments against theories by pointing out that they aren’t falsifiable, because as it turns out no theory is.

Of course there are more sophisticated versions of falsificationism, but as far as I know none of them are as strong as Poppers original thesis, and perhaps therefor they aren’t as popular.

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matt w 08.05.11 at 2:49 pm

Sebastian H @35: You’re saying that Half Sigma — written by the man behind Libertarian Girl — is a high profile economics blog? Good gravy. With all the nasty things I’ve said about [some] economists, I wouldn’t want their discipline to be represented by someone like that.

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hartal 08.05.11 at 2:57 pm

Pitkin’s point at 72 is arresting indeed.

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ScentOfViolets 08.05.11 at 3:20 pm

The Popperian idea of falsifiability is unjustly popular in outside of academic philosophy.

If by “unjustly popular in outside of academic philosophy” you mean “that’s how scientist’s do things”, well, yes, you’re right.

Looking more closely at this it becomes obvious that this isn’t going to cut it, for a number of different reasons. The most famous being the so called Quine-Duhem thesis that it is impossible to conclusively falsify any theory. But without conclusive falsification there isn’t much left of the Popperian falsification concept. Therefor there will be no slam-dunk arguments against theories by pointing out that they aren’t falsifiable, because as it turns out no theory is.

Something besides your statement that theories aren’t falsifiable would be nice. Here’s one: I only see one cat and two dogs in the room. I theorize that the other animals are on the couch in the living room. Checking the living room . . . nope. No animals there. Theory falsified.

I suppose you could say this doesn’t prove anything; how do I know I’m not really suspended in a vat of chemicals with all my perceptions “really” being a set of signals being piped directly into my brain by some fancy wiring. And on that level I’d agree with you.

And then – just like the billions of other people in this world – I’d continue to behave as if my senses and observations do in some sense accurately report what’s really going on[1]. Because that’s not the conversation we’re having. As I’ve already noted, the overwhelming majority of scientists use the falsification criterion.

[1]And does nothing more than relabel sensory experiences as being just that and nothing more. A sterile exercise.

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Lemuel Pitkin 08.05.11 at 3:29 pm

Going back to criticism of DSGE, usually you don’t criticize tools, but their applications

Huh? Of course you criticize tools. The only reason someone would write something this silly, is if they’re selling a bad tool and don’t want to defend it.

It’s clear that people invested in modern mainstream macro realize what shaky ground they’re on, by their attempts to put any discussion of the merits of their approach off-limits. If you read an article or textbook that actually engages with the question of why a DSGE type approach is desirable, they’ll offer an essentially aesthetic argument like “consistency” or defends them on the grounds that they are microfounded (even tho they aren’t) or that they let you draw conclusions about welfare (even tho they don’t, and that isn’t positive science anyway.) But they’ll never say, here is a concrete real-world phenomenon you can’t make sense of without this approach, or here’s a concrete prediction that comes out of work using these tools. Whereas those of us in the old Keynesian paradigm (the macroeconomics of 1978) — constantly evaluating our work in those terms. There is a reason why no one, and I mean no one, who does (or uses) macroeconomic forecasts for a living, uses DSGE approaches.

Imagine I tell you that the best way to understand the macroeconomy is by putting together appropriate Bible quotes. It’s just a tool, I could rightly say, and can you criticize tools. It’s not falsifiable, I could rightly say, but that’s not an appropriate criterion for judging techniques. It’s just a framework, you can find bible passages to support all kinds of different policies. It’s even true that you could find bible passages to support important and insightful arguments — as long as you;d first developed them somehow else. In short, every defense that ivansml has made of DSGE, you could make verbatim of my bible-verse technique. I could even call my technique the Absolute Complete Truth and then wittily ask if you would prefer an approach that was relative, partial and untrue.

Again, the only reason people offer such a vacuous defense is because they don’t have anything better. If there were concrete insights or useful practical applications they could point to, they would. Ivansml, it sounds like you recently spent some years studying macroeconomics in a program that emphasizes DSGE approaches. I’m sorry you wasted your time.

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ScentOfViolets 08.05.11 at 3:35 pm

And they are fake. Making consumption, say, the result of intertemporal optimizing by a single representative agent, as DSGE-type models do, gets you no closer to the microstructure of the economy than just saying aggregate consumption is a function of aggregate income and leaving it at that.

People talk about economists having physics envy. Another way of looking at it is a comparison of economists with all those “futurists” running around rapping about how the Singularity will happen sometime in the next fifty/twenty/ten years. What they’re really saying is that it’s going to happen before they’re dead. Iow, it’s not just their faith that you can mathematize economics (heck, I share that belief to some degree.) It’s their faith that it’s going to happen in their own lifetime.

But you know, the modern physics and chemistry that we have couldn’t have happened before all those pre-mathematical facts were gathered. Take for example, oh, the caloric theory of heat. As you may recall from high school, the caloric theory said that heat was some sort of (self-repelling) fluid. As it turns out, of course, the theory was wildly wrong. But that didn’t mean that the caloric theory wasn’t useful; quite the contrary. It gave us the Carnot cycle heat engine, which most people think is a pretty big thing ;-)

Nor was it hard to falsify the theory in the end. Note, however, that even though it was falsified, we still didn’t have a good, quantifiable, mathematical theory of heat until much later.

Anyway, my analogy for the state of economics as a science in the early 21st century. Come to that, it Keynes believed something very similar fifty and more years ago. Oh, and so did von Neumann. Hmmm . . . maybe these guys were on to something.

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Walt 08.05.11 at 3:48 pm

The history of falsifiability is totally odd. Philosophers convinced scientists that falsifiability was what scientists are really doing, but then decided that that it was a stupid idea. (Personally, the arguments against falsifiability strike me as remarkably weak.)

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liberal 08.05.11 at 4:03 pm

ScentOfViolets wrote, People talk about economists having physics envy.

I thought the physicists looked at economics and said “why aren’t you closer to your data and emphasizing theory so much?” I.e., what economists really have is math envy.

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William Timberman 08.05.11 at 4:05 pm

critical tinkerer @ 65

I recently did a radio program on Enron and the California Energy Crisis, using it as an example of what hatred of government can do to you if that hatred is a blind one. Interestingly, Enron et al. did in fact use stupidities in the government-designed privatization of energy markets to fleece virtually everyone in California, which would seem to confirm your analysis, and make my criticism of Williamson’s point at least partly unfair.

When you look more closely, however, the stupidities in California’s privatization plan were directly related to the lobbying done by private energy interests which were — as always — looking more toward their own profits than the public interest. So…should this debacle be blamed on bad governance, on the malefactors of great wealth, or on the ignorance of the voting public?

Your mileage may vary, but I think that while the art of the possible may not entirely exempt representative government from the responsibility for bad outcomes, capitalism, or more properly, the worshipful attitudes toward it demanded by interests which are as callous as they are powerful, should bear most of the blame.

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Lemuel Pitkin 08.05.11 at 4:11 pm

I thought the physicists looked at economics and said “why aren’t you closer to your data and emphasizing theory so much?” I.e., what economists really have is math envy.

Sounds right to me.

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ScentOfViolets 08.05.11 at 4:14 pm

Hmmm . . . possibly. But I’m not going there :-)

And in any event, it’s pretty odd that anyone suffers math envy, being as the only reason 99.9% of the people who care about it – including physicists, chemists, engineers and economists – is that it has a certain utility in modeling real-world phenomena.

100

Cahal 08.05.11 at 4:45 pm

I’d like to thanks Stephen Williamson for his review. Reading it has persuaded me that the Zombies are still alive, and I need to contribute to the effort against them by buying your book.

101

Keith M Ellis 08.05.11 at 5:04 pm

If by “unjustly popular in outside of academic philosophy” you mean “that’s how scientists do things”, well, yes, you’re right.

No, that’s not what he meant. And that’s not how scientists do things.

A scientist’s inherent ability to understand science, as an object of study, merely by being a scientist, is approximately equivalent to someone’s inherent ability to understand physics because they happen to be physical.

102

njorl 08.05.11 at 5:36 pm

@BertCT(46)

I think the idea is that all other things being equal, growth always helps everyone even if the immediate benefits go to the rich. The problem is that the idealized case is used to justify trickle-down policies which are not ideal. All things never seem to get around to being equal.

The last 20 years in the US didn’t just see money materializing in the pockets of the rich. The money got there because labor costs declined due to free trade and technological advances. Those who sell the more common varieties of labor in the US have lost out, and whatever might trickle down is not making up for it.

The trickle-down proponents always leave out the steps where things are taken from the poor.

103

spencer 08.05.11 at 5:39 pm

Sergei @ #54:

Holy shit, he sure did. And it just so happens to be on my bookshelf. I had to read it when I took Macro as a first-year grad student.

Of course, I gravitated to the Micro side of the discipline, so I suppose I may not be the best person to comment on Williamson’s text …

104

njorl 08.05.11 at 5:57 pm

Liberal,
I think it is physics envy. Statistical mechanics is a statistical extrapolation of the behaviour of large accumulations of matter based on the quantum mechanical properties of individual particles. Without knowing exactly what any specific particle will do, you can make remarkably accurate predictions about what the whole system will do.

That’s an economists wet dream – if you know what people are like in general, then you can know what the economy will do despite not knowing what any specific person is doing. Unfortunately, economists extrapolate from “people act rationally in their own self interest”. That’s like physicists extrapolating from “electrons and protons are equal in mass and opposite in charge”. GIGO.

105

Memory 08.05.11 at 6:13 pm

My model assumes that people do not need to eat. Every time this model is applied as a guide for economic policy, millions of people starve to death, but this can not be blamed on my theory, which as a model can not logically be false because it makes statements that are only internally referential.

How could someone criticize my model, which makes no inherent claim to empirical applicability, instead of criticizing specific applications of my model which might have been associated with immense numbers of deaths? They must be fuzzy-thinking non-scientists who do not understand what a theory is.

Honestly, there are some kinds of truly intense stupidity (not to mention moral idiocy) that are literally unachievable without a doctorate in economics.

106

Superfly 08.05.11 at 6:24 pm

two canadians arguing:

1c: That’s it for you, buddy!
2c: I’m not your buddy, guy!
1c: I’m not your guy, pal!
2c: I’m not your pal, buddy!

repeat endlessly….

107

Greg Ransom 08.05.11 at 6:26 pm

Popper didn’t think so. And I can’t think of a living philosopher of biology who defends this:

“of course you’re right that Darwinism is falsifiable per se”

108

Greg Ransom 08.05.11 at 6:29 pm

The deductive ideas ala Carnap & Popper is dead as a competent picture of what science does — it’s more archaic than an ox wagon as a mode transportation.

109

PHB 08.05.11 at 6:31 pm

@scent,

No, scientists do not follow Popper’s principles, not even close. Many believe that they do however and more importantly, scientists aspire to that level of rigor.

What Popper was attempting to do was not to arrive at a working definition of science, he was setting a yardstick against which to measure what he considered to be junk science. In particular Marxist and Fascist attempts to claim scientific justification for their ideologies and to a lesser extent Freudian psychoanalysis. In other words it is a test that real science fails but junk science fails completely.

Scientists do not in fact develop falsifiable theories and then attempt to test them. What happens in most cases is that the theory is fitted to the facts. It is pretty rare that a completely clean test of a theory is possible. What distinguishes real science from pseudoscience is that (1) real scientists have theories that attempt to make predictions and (2) real scientists are willing to allow others to question their assumptions.

Zombie economics is pseudo-science and so it is not surprising that Popper is brought out as the measure. But the reason Zombie economics fails is that they react to good faith questioning of their assumptions by claiming that only an idiot, a fool would question it. In other words, they react in much the same way that Freudians, Trotskyites, Marxists etc. behave when their assumptions are questioned.

Zombie economics is not a branch of science, it is a cult.

Herman summarizes my argument better than I did: We are not arguing against the use of rat choice, EMH or whatever as a tool, we are arguing against the notion that they provide a complete, perfect and absolute model that is sufficient to analyze every situation.

The claim that an organization has achieved perfect knowledge and the attempt to ostracize contrary views are of course two of the four main techniques of cult-like mind control. The third and fourth being ‘the foot in the door’ and ‘sunk costs’. Cultists are not asked to accept the whole of Zombie economics overnight. The demands start small and are gradually raised to the point where the acolyte has invested so much of their intellectual framework in a bankrupt ideology that they cannot withdraw without their entire mental framework collapsing on them.

110

liberal 08.05.11 at 6:49 pm

Greg Ransom @106,

But it’s easy to conceive of observations that would show the statement “natural selection is the only possible force behind the evolution of complex design” false. All you’ve done in 106 and 107 is appeal to authority and make claims.

111

KGB 08.05.11 at 6:49 pm

“The existence of rival explanatory systems with incommensurable entities and conceptions was shown by Kuhn to refute Popper’s deductivist paradigm of “science” married to his “falsifiability” criterion of “science”.”

Not particularly. The Kuhnian conception goes further and demonstrates that paradigms are fundamentally incommensurable and consequently are unable to be compared with each other. Which is the great irony because “rival explanatory systems” cannot even make sense of each other. Or in other words saying X is a correct depiction and Y is wrong is fundamentally nonsensical.

What really did in Falsificationism was confirmation holism.

“The popularity it enjoyed for a time in the philosophy of science more or less came to an end with Lakatos in the 70s (or perhaps even earlier), but for some reason it has a life outside of philosophy still (it’s a zombie-idea).”

Actually it’s rather understandable why it’s popular.

112

liberal 08.05.11 at 6:53 pm

…adding, that I agree with PHB in 108 that scientists don’t operate in a manner which emphasizes falsifiability. Certainly evolutionary biologists don’t, AFAICT. But that doesn’t mean evolution and natural selection aren’t falsifiable.

113

liberal 08.05.11 at 7:04 pm

Finally, re Greg Ransom’s claims, there’s a sense in which I agree.

Namely, IMHO, “evolution” (as opposed to natural selection) is falsifiable in principle (e.g., observing rabbits in the pre-Cambrian).

“Natural selection as an explanation of evolution” (especially complex design) is falsifiable, in the sense of the hypothesis “natural selection is the only known explanation of the genesis of complex biological designs.” (That is, appeal to natural selection’s necessity is falsifiable; evidence of complex design arising in one generation would do it.)

OTOH, the sufficiency of natural selection, meaning “natural selection suffices to explain the historical record of the genesis of complex design” isn’t AFAICT falsifiable, at least not now.

114

William Timberman 08.05.11 at 7:16 pm

liberal @ 110

Irreverent, but not, I think, irrelevant: If God were to whisper in Michele Bachmann’s ear the location of the divine blueprint for archaeopterix, and she in turn were to hold it aloft for all to see on the floor of the House, would Popper then be exonerated, and the rest of us revealed to be the little people that we are? All dispute ended, et nunc, et semper, et in saecula saeculorum? Is that the story here?

115

warai otoko 08.05.11 at 8:05 pm

@ScentOfViolets

It is very good that you want something more than simply me saying so to believe in what I say, but if you notice I do give at least one reference to the most popular argument against what is called “naïve falsificationism” (the Quine-Duhem thesis). Now in the same manner I might be interested in what arguments you have for your claim that the majority of all scientists operate according to the principles of falsificationism. I will however not press you on that point.

I guess I could continue to argue a bit and give you some examples of arguments against falsificationism (or point out why your example with the cats isn’t particularly good), but I’d rather do something else. For more info, A. F. Chalmers has an excellent book called “What is this thing called science”, chapters 5-7 are about falsificationism and is written in a language even laymen should be able to understand.

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ScentOfViolets 08.05.11 at 8:22 pm

No, scientists do not follow Popper’s principles, not even close. Many believe that they do however and more importantly, scientists aspire to that level of rigor.

Really? So when Einstein made his prediction about how much the Sun would bend starlight, GR wouldn’t have been falsified if it had turned out to be wrong?

Scientists do not in fact develop falsifiable theories and then attempt to test them.

!?!?!?!?! Not only wrong, but weirdly wrong.

What happens in most cases is that the theory is fitted to the facts. It is pretty rare that a completely clean test of a theory is possible. What distinguishes real science from pseudoscience is that (1) real scientists have theories that attempt to make predictions and (2) real scientists are willing to allow others to question their assumptions.

This seems to be something of a muddle as well. I’m guessing that what you’re trying to say is that scientists do other stuff besides come up with testable hypothesis. Well, yeah, that’s certainly true. But it’s all part of the scientific method.

Or are you going to say now that scientists don’t really follow the scientific method either? Let’s get a capsule summary so we can all agree on what we’re talking about; from the wiki :

Scientific method refers to a body of techniques for investigating phenomena, acquiring new knowledge, or correcting and integrating previous knowledge.[1] To be termed scientific, a method of inquiry must be based on gathering empirical and measurable evidence subject to specific principles of reasoning.[2] The Oxford English Dictionary says that scientific method is: “a method of procedure that has characterized natural science since the 17th century, consisting in systematic observation, measurement, and experiment, and the formulation, testing, and modification of hypotheses.”[3]

Although procedures vary from one field of inquiry to another, identifiable features distinguish scientific inquiry from other methods of obtaining knowledge. Scientific researchers propose hypotheses as explanations of phenomena, and design experimental studies to test these hypotheses via predictions which can be derived from them. These steps must be repeatable, to guard against mistake or confusion in any particular experimenter. Theories that encompass wider domains of inquiry may bind many independently derived hypotheses together in a coherent, supportive structure. Theories, in turn, may help form new hypotheses or place groups of hypotheses into context.

Seems pretty straightforward to me. If you want to quibble and say that hypotheses are not theories, fine; I’ll give you that bone.

117

ScentOfViolets 08.05.11 at 8:29 pm

Certainly evolutionary biologists don’t, AFAICT. But that doesn’t mean evolution and natural selection aren’t falsifiable.

Could you elaborate on this one with some specifics? Evolutionary biologists certainly operate as if the theory is true, of course. But unfalsifiable? I’m finding that one hard to believe. Perhaps you are thinking of evolutionary psychologists?

If so, I’d tend to agree with you. Putting on a white coat and calling yourself a scientist does not make you a scientist.

118

ScentOfViolets 08.05.11 at 8:32 pm

Actually it’s rather understandable why it’s popular.

Very much so. Operationalism and logical positivism won the day, way back when. That victory was to my mind immortalized with Einstein’s response to a question about what time “really” was: Time is what clocks measure.

119

Herman 08.05.11 at 9:33 pm

@ivansml

So if macroeconomists use inappropriate versions of GE, then maybe the solution is to introduce appropriate version of GE.

Maybe, or maybe not. The solution to my mind is methodological pluralism. My main gripe is not against some people developing DSGEs, but on the insistence that everybody do so. It has been almost forty years since the birth of New Classical economics and almost thirty years since Kydland-Prescott. Back in the 1970s Lucas said that he expected GE macro models to outdo any others in nearer 5 years than 25. Well, according to Chari-Kehoe-McGrattan. we still do not have DSGE models that are useful for policy but we must have faith for in the future we will. Meanwhile what are policy makers to do? Sit on their haunches?
Also, many of the hopes from these model haven’t panned out. They are not particularly good at helping us identify ‘deep structural parameters’, nor do they give greater parameter stability. Yet, these were the critical points made to justify their use.

If you want models with multiple goods and sectors, or heterogeneous consumers, or incomplete markets, or whatever, I’m sure you could find at least some recent research in that direction

Yes, but one or two at a time, not all together.
Again, my main point is about methodological pluralism. People should be allowed to work on many different approaches – old fashioned ‘mechanical’ models, agent-based models, various forms of VARs,
even partial- equilibrium models. Premature convergence to a particular methodology without overwhelming empirical justification only discredits the practitioners and the field.

120

ivansml 08.05.11 at 10:06 pm

@Lemuel Pitkin #93:
Within your example, if I was arguing against Bible-founded models in general, then I would have to find arguments that would focus on features that all such models have in common. Problematic assumptions in specific models, or their poor forecasting performance, or their misuse in political debate is not enough for such a general critique (call it the problem of induction if you want). Clearly I would have to argue that the framework itself is flawed and that building economic theory on quotations from old religious texts is not a good approach. When you are criticizing DSGE models in general, I expect the same level of generality, but so far I have seen no such thing. But anyway this whole debate is somewhat silly – what is important about a particular model is its assumptions and implications, not the acronym under which it is labeled.

Ivansml, it sounds like you recently spent some years studying macroeconomics in a program that emphasizes DSGE approaches. I’m sorry you wasted your time.

In fact I still am “wasting my time”. Whether it is really waste, I will be able to say in a couple of years. But what I do know so far is that micro-founded models make more sense to me than all IS/LM/AS/AD diagrams from undergraduate courses.

@PHB #109:

Herman summarizes my argument better than I did: We are not arguing against the use of rat choice, EMH or whatever as a tool, we are arguing against the notion that they provide a complete, perfect and absolute model that is sufficient to analyze every situation.

And who thinks that they provide a complete, perfect and absolute model? Not any economist I know. All economic models are at best a crude approximation of reality, and any good economist is aware of that. If some get carried away and misrepresent economic theory for political goals, by all means they should be called on it. But that doesn’t allow you to proclaim whole subfields as pseudo-science and “cult” based on your straw-man caricatures.

121

Walt 08.05.11 at 10:19 pm

Ivanml, try publishing a non-DSGE paper in a top journal, and then get back to us on how it goes.

122

ivansml 08.05.11 at 10:21 pm

@Herman #119:

Again, my main point is about methodological pluralism. People should be allowed to work on many different approaches – old fashioned ‘mechanical’ models, agent-based models, various forms of VARs, even partial- equilibrium models. Premature convergence to a particular methodology without overwhelming empirical justification only discredits the practitioners and the field.

Fair enough. I’m not saying that DSGE is the only way to do research in macroeconomics (and if some people do, then yeah, they should loosen up a bit). On the other hand, it might be useful to have a benchmark providing some “common language”, and right now that benchmark seems to be micro-founded models.

123

Walt 08.05.11 at 10:32 pm

I mean _macroeconomics_ paper, of course.

124

Lemuel Pitkin 08.05.11 at 10:35 pm

what I do know so far is that micro-founded models make more sense to me than all IS/LM/AS/AD diagrams from undergraduate courses.

And what I know is that the IS/LM and AS/AD models help us understand the behavior of actual economies.

I think it’s quite telling that you defend DSGE here on the grounds that it “makes sense”. You don’t write something like, these models clarify why monetary policy has become less effective, or the conditions under which the balance of payments shocks lead to large falls in output, or how much oil prices have contributed to recent changes in output, or anything like that. Because DSGE models aren’t helpful in answering those kinds of questions, and everyone knows it.

125

John Quiggin 08.05.11 at 10:54 pm

By the way, I’m not a naive Popperian (Lakatos seems much more sophisticated to me, and I have a fair bit of time for Kuhn). But when a supposed scientific theory has no testable implications, it is time to call old Karl P out for the smackdown.

126

kidneystones 08.05.11 at 11:36 pm

From Digby – A Course in Miracles. Fun stuff.

One has to wonder about the long-term effects that the many hours spent standing in front of the mirror practicing his/her game has upon the principled souls committed to winning new supporters for candidate X. Explains, in part, the quasi-religious faith some still place in lawyers.

127

kidneystones 08.05.11 at 11:37 pm

Wrong thread, sorry!

128

PHB 08.06.11 at 12:08 am

@ivansml

Of course no economist is going to actually admit to a pseudo-scientific approach. But that does not mean that approach is not common in the field. What people do and what they think they do is often two different things.

Its like the people who will tell that ‘of course’ nobody in the Bush administration believed torture is justified – If it is justified then it can’t be called torture.

In this case we have this Williamson who (1) attempts a smackdown of Quiggin by claiming to outrank him on credentials and then (2) in the next breath is belittling Krugman who happens to have at least one more Nobel prize than Williamson has or is ever likely to receive.

On what planet is that remotely credible behavior. I note that Krugman has delivered a smackdown of his own on his blog pointing out that (1) Quiggin is rather better known in the field than Williamson and (2) this mode of argument is stupid in any case.

This is really bizarre cult like behavior. It may be extreme but this mode of discourse has become quite common in the field and worse has bled into the public debate. Now the K-street whores who peddle this nonsense can be dismissed as ‘fake economists’ but there is also the recently uncovered string of Koch brothers professors peddling fake economics in an even more insidious fashion.

129

Strider 08.06.11 at 12:13 am

Wow. As a working, experimental astrophysicist who routinely tests hypotheses and works with theories which make falsifiable predictions, some of the stuff being spouted here reminds me of why so many actual scientists pay no attention to what science philosophers blather on about. It really is simple. The absolutely spectacular success of what some people call hard science and what I simply call science has caused many other fields to try to gain extra legitimacy for their work by calling things like economics “science”. Simply put, some things, like theories trying to describe basic, universal physical laws, can be falsified. And that is what makes physics so strongly legitimate, because within given parameters to within given accuracies, a good theory makes testable predictions that can be experimentally verified EVERY SINGLE TIME. So, a single good experiment which does not agree is enough to require at least modification of the theory, if not downright rejection. However, MOST human knowledge, and including some popular theoretical frameworks in physics, is simply not subject to such strict testing criteria. And that may include much of evolutionary biology, and most of economics. Evolution is a paradigm, a theoretical framework, and such things are often not testable. But, within that paradigm testable (i.e. falsifiable) theories can be developed, and when that is the case, only then is it justifiable to call it science. When that isn’t the case, then call it something else (eg. a well informed opinion) even if you can quantify the idea and develop equations with it and use those equations to describe actual data. If the idea can’t make surprising, unique quantitative predictions that can pass rigorous tests within certain, well defined boundaries every single time, then don’t call it a scientific theory. Otherwise, you are simply being disingenuous and you usually end up falling back on citing human authority (as Greg Ransom is constantly doing here). Humans are fallible, and most of what most of us think of as true was just some shit that somebody thought up, sounded reasonable, and fits with our everyday subjective observations. The scientific method is an attempt to go beyond that, and for some fields of knowledge it is better suited than others. Einstein was a genius, and he hypothesized some remarkable things that made bizarre predictions that have been corroborated to amazing degrees of precision by a wide variety of experiments with plenty of opportunities for proving them wrong, but he was also sometimes simply wrong. And that last statement comes from experimental testing of his ideas, not on some other physicist’s authority. If you have to fall back on human authority, you may be correct, but you are not doing science.

Sorry for such a long post. I like what you are doing here, but I think much of what Williamson’s problem is, and much of what you seem to be attacking in Zombie economics, is that some authority figures in modern economics have represented things as “universal laws” which don’t actually seem to work out well in the real world, and some of their followers and students seem not to realize that their “laws” really were just informed, or perhaps misinformed, opinion.

130

PHB 08.06.11 at 12:17 am

@Scent

Had Einstein been able to test his predictions the first time round the theory would have fallen as he only had special relativity. But his starting point was not to create a falsifiable theory, his starting point was to explain an existing set of experimental results that could not be explained and to ‘save the appearances’.

It is possible to show that scientific communities apply a vaguely Popperian approach: Experimentalists try to identify falsifiable elements of theories and test them. Theories that cannot be tested are not very interesting to experimentalists. But individual scientists do not apply Popper as a scientific method.

In short, real scientists don’t need to ask themselves about scientific method or worry about whether they are applying it. The question of whether Physics or Chemistry are ‘science’ does not need to be asked. The question only arises when dealing with a pseudo-science.

131

ScentOfViolets 08.06.11 at 12:43 am

Had Einstein been able to test his predictions the first time round the theory would have fallen as he only had special relativity. But his starting point was not to create a falsifiable theory, his starting point was to explain an existing set of experimental results that could not be explained and to ‘save the appearances’.

!?!?! Well, SR has nothing to say about the effects of gravity on light, so this is – dare I say it? – not even wrong[1]. It goes downhill from there.

It is possible to show that scientific communities apply a vaguely Popperian approach: Experimentalists try to identify falsifiable elements of theories and test them. Theories that cannot be tested are not very interesting to experimentalists. But individual scientists do not apply Popper as a scientific method.

This looks like yet another edition of “You’re not saying your words right” along with a helping of argument by assertion.

[1]This is so wrong in fact that I’m wondering if you know what distinguishes SR from GR.

132

ScentOfViolets 08.06.11 at 12:47 am

By the way, I’m not a naive Popperian (Lakatos seems much more sophisticated to me, and I have a fair bit of time for Kuhn). But when a supposed scientific theory has no testable implications, it is time to call old Karl P out for the smackdown.

An excellent point. Very few people stop at Popper. But it’s just these sorts of discussions that pop up with such distressing and increasing frequency that justifies hauling KP out and employing him as a crucifix.

133

Watson Ladd 08.06.11 at 12:49 am

@Lemuel: NARU would be an example of an effect that many Keynsians did not think existed, as they were taken in by the experience of the 1960’s and 1950’s. (Assuming you believe it: i’ve seen people claim NARU dynamics don’t fit) But its worth noting that the DSGE approach makes a very appealing theory claim: We are evaluating the decisions individuals make as microeconomic actors and letting the macro flow from that. Unfortunately the macro is laughably wrong, but the challenge of getting the micro to imply the macro is still there. Krugman just argues “oh, well this inconsistency is fine because the results are correct” but I would prefer some solution. (There might be one: i don’t know the literature well enough to say there isn’t)

134

John Quiggin 08.06.11 at 1:03 am

SoV, I think you are on a week’s break. Not objecting to the content, but you are flooding threads again.

135

Cosma Shalizi 08.06.11 at 1:41 am

But the micro in DSGEs is laughable too. Even when they’re not strictly representative agent models (and the ones which people try to connect to data in any half-serious way are; see e.g. the textbook by DeJong and Dave), they really show no resemblance to serious microeconomics. For instance, the Krusell and Smith paper [ungated copy; it's also in JSTOR but when I type that link preview does horrible things] is widely cited as one of the first to allow “heterogeneous agents”. These all have the same form of utility function, differing at most in how much capital they possess and, possibly, their discount rates. More importantly, there is exactly one good, which serves indifferently for consumption and for capital (you can eat capital, apparently), everyone has the same constant-returns production function, and everyone produces with their own capital. (There is, in other words, no division of labor, and no reason for trade.) Unemployment is totally random, so there is no labor market, or at least not one which clears, and there is no capital market at all, yet “wages” and “return on capital” are blithely decreed to be the marginal productivity of labor and capital. Even so, this leads to enough heterogeneity that the solution procedure used by Krusell and Smith is what in physics or stochastics we’d call an ad hoc “moment closure”, without the least attempt to justify it from microeconomic theory. It’s absurd to to compare this with the microeconomics in a good industrial organization textbook, let alone something like Sutton’s Technology and Market Structure, or Gintis’s investigations of the actual dynamics of general equilibrium. Yet we are supposed to bow down before models like this because they have “microfoundations”. (Shorter me: “Methodological individualism: you’re doing it wrong.”)

136

Cosma Shalizi 08.06.11 at 1:58 am

So long as I’ve broken down and am commenting: Popper’s ideas about falsification are inspiring, but if you take them seriously they run into all sorts of problems. For instance, no non-degenerate statistical hypothesis can ever be falsified in Popper’s sense. When I say that the half-life of U-238 is 4.5 billion years, what I really mean is that each nucleus of U-238 decays according to an independent Poisson process, with a 50% probability of decaying after 4.5 billion years. According to Popper’s definition of falsification, this is not falsified, in Popper’s sense, if half of a one ton sample of U-238 has decayed in one day. Indeed, no finite-duration history of decays can falsify any hypothesis about half-lives. I submit that a philosophy of science which has this sort of problem is simply unable to handle modern science, where “modern” begins around 1860, with Darwin and Maxwell. There are more sophisticated falsificationist accounts, to which I am highly sympathetic, but the fact is that lots of exemplary science does not meet Popper’s standards of falsifiability.

137

PHB 08.06.11 at 2:30 am

@scent,

If you are going to be condescending, first know of what you speak.

Einstein understood that SR did not take acceleration into account, in 1908 he attempted to describe acceleration in terms of SR which is what he based his eclipse approximations on.

It was only after the eclipse passed without the opportunity to make the measurements that he came up with GR. Had the measurements been made then GR would have been seen as a tweak to the theory to make it consistent with the experimental result rather than a completely new approach.

So it was blind luck that meant that the scientific method was applied.

138

ScentOfViolets 08.06.11 at 2:36 am

SoV, I think you are on a week’s break. Not objecting to the content, but you are flooding threads again.

Ah, sorry, I thought that was only on the “Henry” threads. In any event: if eight different people respond directly to what I write, and in a way that invites a reply, how would you suggest I handle this in the future?

One last point: Cosma, you could just as well say the same sort of thing about the frequentist approach to statistics. A coin comes up heads twenty times in a row? Forty? Eighty? You can say with some justification that this doesn’t “prove” that the coin isn’t fair. But most people are going to say – based on insufficient evidence – that it isn’t. Iow, there is a distinction to be made between the philosophy of science and the way science is actually done.

139

Matthias 08.06.11 at 2:37 am

I did read Quiggin’s book and I find many things I agree with. But the “DSGE” critique is misplaced. Or at least it can easily be misinterpreted. A DSGE model is a pretty broad tool and concept.

Here is a recent paper by Eggertson and Krugman
http://www.newyorkfed.org/research/economists/eggertsson/EggertssonKrugmanWP1.pdf

Is this a DSGE model? Yes.

It is dynamic and stochastic. Check. Check. It starts with preferences and technology (using “deep” parameters) and goes on to solve a general equilibrium. Check. Check.

In other words, “general equilibrium with a twist”, as Zombie Economics puts it.

Quiggin and Krugman seem to like each other. It may be awkward for him to admit that his critique applies to Krugman’s recent work.

I really like this paper. It is more productive to discuss particular ideas, bodies of work or research papers. Quiggin does a bit of this in this chapter of this book. But he stoops low in the end, over simplifying, over generalizing and name calling.

Calling DSGE a “Zombie idea” is childish and just plain unproductive.

But hey, everyone makes mistakes. Even Quiggin.

140

Thomas Zaslavsky 08.06.11 at 2:43 am

Before Hayek and Kuhn, Einstein said that physical theories are the free creation of the human mind, constrained by the facts. (He may have said “scientific theories” and if not, he probably would have agreed with that extension as the reason is the same.)

@ Scent_of_Violets #116: When Einstein’s prediction about the degree of bending of sunlight was tested by observations during the solar eclipse of 1919, the measured numbers did not agree with his predictions exactly. They agreed with the Newtonian predictions much less. This was and is called the confirmation of general relativity, but the decision to call it confirmation was not based on exact agreement. (More accurate later measurements indicate that Einstein was indeed right but they were not available in 1919.)

NASA teachers’ guide: “It’s interesting to note that there is some question as to whether or not the equipment and results of the 1919 eclipse expeditions really had the sensitivity to detect the starlight deflections that Eddington claimed.” Also, the observing conditions were not great. I think the weight of opinion is that the numbers concluded from the observations were valid, but not very precise. See A. Pais, “Subtle is the Lord …” (a great book), where the eclipse observations are discussed very carefully.

In view of this (and other considerations) it is hard to see exactly what Popper’s falsifiability means in practice. Being explicit: Observed numbers rarely (if ever) match predicted numbers exactly; how much deviation is required before a theory is “falsified”? Turning it around, how much deviation is allowed when a theory is “confirmed”? Neither can be zero.

In my (unoriginal) view the purpose of a scientific theory is to provide explanation. That doesn’t mean any valid explanation is scientific. It also doesn’t mean there is no hypothesis testing. It does mean that testing predictions is not the only criterion for evaluating a theory.

So I disagree mildly with Quiggin @ 125; explanatory power doesn’t necessarily mean testable implications. As Einstein said, there are many possible theories that will survive the tests; we choose those that make better sense. And I agree with PHB @ 129’s first paragraph: Einstein was not aiming for testability, he was aiming for a better (in this case, more comprehensive and unified) explanation than existing theories gave, and in particular to overcome the inconsistency between the speed of light limitation (special relativity) and Newtonian action at a distance. (Analogously, special relatively aimed to overcome the contradiction between the finite speed of light in Maxwell’s theory and the infinite speed of action at a distance in Newton’s theory. It gave only a partial answer; hence general relativity.)

Last word: Lakatos’ book is delightful. It’s also controversial. I don’t know why; maybe someone else does?

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PHB 08.06.11 at 2:49 am

@Cosma,

Actually Popper himself was deeply concerned with the problem of induction and the difficulty of dealing with that type of situation.

What tends to be presented on boards like this is the populist version of Popper used for the smackdown of Marx and Freud. People tend to miss the fact that it is exceptionally rare for real science to meet that standard.

I don’t think that freak statistical patterns are in fact as problematic as you think. If we have a weird, highly improbable event happen repeatedly (as in likelihoods of 1:10^100 or less) then maybe its time to work on infinite improbability drives or the like as we happen to have the bad luck to be in the universe where the weird stuff happens.

Popper would tell you that it doesn’t matter as you are never going to arrive at an absolute truth in any case. OK so you have an anomalous experimental result. Either its repeatable in which case thats what the laws of physics turn out to be in your universe or it isnt in which case you either ignore that data point or you put it down to some one off effect you are not aware of. For example your event would probably be explained by some form of particle acting as a catalyst for induced fission and there would be a long fruitless search for a non existent particle (if the planet survived the event that is).

If you have bad luck you are going to end up with a faulty theory, but thats going to happen anyway.

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Cosma Shalizi 08.06.11 at 3:03 am

PHB @139: For my sins, I have read Popper on statistical hypotheses and their evaluation, and on probability. I admire him greatly in general, and think the world would be a much better place if everyone would just sit down and read The Open Society and Its Enemies already, but on these matters he was useless. His escape hatch for rejecting statistical hypotheses is to allow us to make a “risky decision” to regard them as falsified by evidence which they predict to be very improbable, though possible. But if “risky decisions” are the standard for falsifiability, what, pray, is not falsifiable? Even someone like Braithwaite (Scientific Explanation, 1953) was much more insightful; it is no accident that Braithwaite, unlike Popper, actually paid attention to statisticians like Neyman.

143

Mr February 08.06.11 at 3:33 am

It could have been worse. Williamson could have mistaken you for a New Zealand economist.

144

Keith M Ellis 08.06.11 at 3:51 am

People tend to miss the fact that it is exceptionally rare for real science to meet that standard.

But there’s a reason for this. Science is a very idealistic enterprise and tends to attract idealists (not in the philosophical sense, but in the common language use of the term “idealist”). But not only that, science as a career requires an enormous amount of preparatory effort and sacrifice, and the effort and sacrifice continue. It’s an underpaid and under-respected profession in our culture.

Pretty much wherever there’s a profession that requires great sacrifice against long-odds of success you have a highly romantic, mythologized view of the profession with associated deeply internalized self-images of its practitioners. You see this quite obviously with medical doctors. But also with creative artists and even politicians. Certainly police officers and firefighters. The military.

There’s a huge emotional investment in this romanticized self-image. It’s part of why someone does this sort of thing and, more important, it’s part of why they continue to do these sorts of things in the face of professional adversity.

We teach children a highly romantic and idealized view of what science is and how it works and the people that go on to become scientists internalize this view.

No one here who has been critical of Popperian falsification has, for example, asserted any sort of strong relativist philosophical position about the nature of reality and the associated implications for science. But from some of the reactions, you’d think they had. From the reactions, you’d think that in pointing out that falsification isn’t actually as useful a standard as commonly thought and that, in practice, falsification playing a central role is the exception and not the rule, someone had claimed that science was a sham and there was no distinction possible between good and bad scientific theories and practice. But of course no one has said anything of the sort. The funny thing is that science succeeds just fine in its positivistic enterprise even when, perhaps especially because, it doesn’t actually work the way that many scientists think it works. If every scientist had to strictly follow the scientific method; a lot less science would get done. Philosophers of science and science studies researchers who challenge these naive notions about science aren’t, in general, criticizing science as an enterprise. They’re criticizing a misunderstanding about science because, like scientists, they’re interested in how things really are, how things really work, rather than making or defending normative assertions about how science must work because they specifically have some emotional investment that it be a certain way.

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Greg Ransom 08.06.11 at 7:16 am

Keith, it’s easy to document the fact that economists have attempted to create “science” based on various false pictures of “science” taken from philosophers and from rumors heard in the hallways of actual science.

E.g. Schumpeter attempting to make “science” in the image of Mach, Samuelson attempting to make “science” in the image of Mach & the American operationalists (see especially Samuelson’s work on “revealed preference” and Stanley Wong’s detonation of that project, or Hayek on Schumpeter & Mach). Samuelson admitted that his anticipation of how economics would become “science” via the simple plugging in of econonometrics was a complete bust. Friedman late into life was claiming that statics and data and “testing” would lead to agreement on all political topics and the end of all ideological dispute. Friedman seems not to notice that the core explanatory causal mechanism in his most fundamental account of the market process — Free to Choose — used Hayek’s learning via prices mechanism and made no use of any “test”.

There are many other examples, but I’ll stop with those.

146

Walt 08.06.11 at 9:41 am

I find the claim that scientists don’t know how science works bizarre. Maybe they have a Whig view of history that predates their careers, but given that they have to succeed in a competitive environment, I doubt people who are full of idealistic illusions make it to tenure.

If you take Popper’s ideas too faithfully, then of course you end up with something that doesn’t match the reality too well (particularly for probabilistic events, as Cosma points out). And maybe that’s the standard in philosophy — if your ideas can be misapplied by a hyper-exact robot then they are wrong. But falsificationism has clarified to scientists what it is that they are in the business of doing, and that is ultimately Popper’s contribution.

147

ivansml 08.06.11 at 11:37 am

@Cosma Shalizi #135:
Krusell & Smith (1998) is indeed very simplified and stylized model. So what? That’s how economics works – you have an idea, you write a simple model that illustrates the idea. Then, if you care, you can think about extensions, more realistic features, etc. It would be great if we could, after some cumulative effort, write a big model of the economy that would include all relevant concepts from microeconomics and provide quantitatively good description of all economic data. In other words, it would be great if our models were as good as those of physicists. But they are not, so in the meantime (and maybe forever) we are stuck with models as crude approximations, or story-telling devices that give us qualitative insights instead of precise predictions.

Goal of K&S paper (as I understand it) was not to provide fully realistic and ultimate model of heterogeneity, but investigate what happens when you combine idiosyncratic shocks with aggregate uncertainty in the simplest possible model. Contrary to what you said, there is market in labor and capital (it’s a competitive market, but it’s there), and authors do spend some time motivating their solution procedure by assuming bounded rationality on the side of agents (they don’t consider whole distribution of capital, only it’s mean value). Anyway, since then people have introduced different solution procedures for this kind of models. As it turns out, in this simplest model idiosyncratic shocks don’t matter very much. On the other hand, authors try also an extension with heterogeneity in discount factors, and show that it gives you more realistic distribution of wealth.

So what is the message form all this? You certainly don’t have to bow down before this or any other model. But it was clearly an influential paper (Google Scholar shows 928 citations) which provided an interesting technical contribution and motivated a lot of work in studying heterogeneity (recent survey here), some of which is certainly more realistic and sophisticated.

148

hartal 08.06.11 at 3:59 pm

People are missing here why the DSGE or more specifically the rational expectations revolution took off. Keynesianism had failed, so there was a need for a policy effectiveness thesis. Quiggin does a good job showing how the thesis evolved from Friedman to Muth to Lucas and Sargent. But this was not a purely intellectual development of ideas. The ideas followed practical failure; freshwater hegemony resulted from the disarray that Keynesians suffered as a result of the fact of policy effectiveness. Eventually the failure of policy to remedy unemployment at a cost tolerable to the prevailing forces within society resulted in the naturalization of unemployment, Reagan kicking off his presidential campaign in Philadelphia Mississippi, and the reversal of the civil rights movement. The radicalized gaps in wealth and employment have again widened in this crisis.

149

hartal 08.06.11 at 4:00 pm

I wish radicalized gaps; I meant racialized gaps

150

William Timberman 08.06.11 at 4:31 pm

Eventually the failure of policy to remedy unemployment at a cost tolerable to the prevailing forces within society resulted in the naturalization of unemployment, Reagan kicking off his presidential campaign in Philadelphia Mississippi, and the reversal of the civil rights movement.

Which is probably why, while Krugman and DeLong are in the business of resurrecting Keynesian insights, if not Keynes himself, a pitiful few of us are looking again at Marx. It may or may not be true that there’s currently no political leverage available for the redress of economic injustice broadly considered, but one thing does now seem to be true that hardly anyone in the developed world believed to be true in 1960 — technocracy is just not worthy of our trust. And never mind what flavor is currently being offered. It’s not the taste we should be worried about, it’s the nutritional value.

151

bh 08.06.11 at 4:35 pm

Keynesianism had failed, so there was a need for a policy effectiveness thesis.

If you’re going to make such a strong — and in my opinion, ridiculous — thesis, you’re going to have to provide some support. Just pointing out the existence of stagflation in the 70s won’t remotely cut it.

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bh 08.06.11 at 4:49 pm

#150 — the inability to find a powerful-enough constituency for the appropriate remedies is a huge problem then and now. It’s certainly why I find myself a lot less sympathetic to self-proclaimed center-left technocrats than I once was.

That’s simply a different topic than the insights into macroeconomic distress that Keynes provided, nor the effectiveness of the proposed remedies when they’re actually tried.

There are aspects of Marx that I find genuinely interesting, and I certainly don’t want to get into any highbrow red-baiting, either. But there really is a continuity of cluelessness between Austrians and Marxists on the business cycle.

It’s pretty rich hearing about practical failure from these quarters, too — where are the successful results of pursuing these alternatives? They don’t exist in the real world.

153

hartal 08.06.11 at 4:59 pm

bh,
You seem very upset, threatening to spin off into what you yourself describe as red-baiting. Keynesianism was certainly perceived to have failed, and that real or perceived failure, coupled with Keynesian confusion about how to make sense of stagflation, created the conditions for freshwater hegemony, centered on the policy ineffectiveness thesis. It should be obvious that I consider that hegemony to be a profound tragedy.

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William Timberman 08.06.11 at 5:07 pm

bh @ 152

It’s not Marx’s economics, or his pretense to a science of history that entice — at least in my case — nor is it really the politics. It’s a) the notion that we must seriously confronting the agility of capital, which is as global and anonymous as it was in his day, while labor remains chained by all sorts of cultural imperatives, b) the quite ably-presented assertion that all God’s chillun deserve to eat, and that an ermine-trimmed robe is NOT a sign of God’s grace, and c) that the charity of the powerful, or their technocratic apologists, is no guarantee of anything that matters.

155

William Timberman 08.06.11 at 5:08 pm

Ugh. seriously confront, if you will.

156

matt w 08.06.11 at 5:48 pm

Walt @148: I find the claim that scientists don’t know how science works bizarre. Maybe they have a Whig view of history that predates their careers, but given that they have to succeed in a competitive environment, I doubt people who are full of idealistic illusions make it to tenure.

I don’t know about that; baseball players have to succeed in an even more competitive environment, and some of the best of them clearly don’t understand how baseball works. (See the Fire Joe Morgan archives.) I’d expect scientists to be more reflective than baseball players, but even so I wouldn’t necessarily expect them to be the best at analyzing their practice; being good at a practice doesn’t necessarily translate to being good at describing it. Not that I want to come down on either side of this argument.

In something I know a little more about first- and second-hand, it does seem to me that many if not most mathematicians subscribe (or used to) to a sort of formalism or logicism or mix thereof — the idea that everything they were doing was disguised set theory and could be translated back into set theory if you had enough time — and that their practices didn’t conform to that at all.

157

bh 08.06.11 at 6:16 pm

William Timberman 08.06.11 at 5:07 pm — I’m down with this. Pretty good summary of the stuff I think is relevant. I just don’t want to throw out the only useful theory of business cycles we have in the process. Not saying you’re doing that, but elsewhere…

Plus, the LTV is a fundamentally-discredited Ricardian artifact, as far as I’m concerned.

158

Lemuel Pitkin 08.06.11 at 6:25 pm

Keynesianism was certainly perceived to have failed,

This is rather different from your earlier claim taht it actually had failed. It’s an interesting question in intellectual history whether even the weaker claim is correct; I’m inclined to think that it’s not. But I think it’s quite clear that the rise of approaches based on intertemporal optimization and rational expectations had nothing to do with any advantages if those approaches for forecasting and policy. Even insofar as right-wing economics provided a convenient ad hoc justification for Volcker’s efforts to crush labor, it was monetarism, not rational expectations, that did the work.

159

bh 08.06.11 at 6:27 pm

You seem very upset, threatening to spin off into what you yourself describe as red-baiting.

Huh? On both counts. You seem to have serious reading comprehension issues, both in terms of arguments and what I guess could be termed emotional cues.

WT’s posts get at the actual issues, if you’re interested in them.

160

Watson Ladd 08.06.11 at 6:31 pm

@Lemuel Pitkin: Wasn’t rational expectations part of NAIRU, and thus the argument for monetarism?

161

hartal 08.06.11 at 6:42 pm

LP,
Of course the weaker claim is correct, and the stronger claim may well be correct. The policy ineffectiveness thesis resonated exactly because of the perception and reality of Keynesian failure which was reflected not only in the fact of stagflation but also in the absence of a clear Keynesian explanation for it. Quiggin himself credits Friedman for developing an explanation (not one that he finds persuasive, but that is beside the point) for the breakdown of the Phillips curve even before inflation began to gallop.

To put it another way: the later success of Lucas and Sargent (and even monetarism) can’t be explained in terms of the internal strengths of rational expectations but in terms of the historical context.

bh, why don’t you tell me what you mean by this: “I certainly don’t want to get into any highbrow red-baiting, either.”

162

bh 08.06.11 at 6:56 pm

Hartal,

Meaning, I wanted to make clear that’s not what I’m doing — that my criticisms of Marx aren’t misinterpreted as, for example, the work that some ‘center-left technocrats’ have done on Chris Bertram. As you are apparently doing now.

I’d apologize for being unclear, except that it didn’t seem to confuse anyone else. And I’ve seen you do this pretty much any time there’s criticism of Marx by anyone, right down the projection-y intimations that the other party has gotten themselves excessively worked up.

163

hartal 08.06.11 at 7:04 pm

I am honored that you are reading me so carefully to make that assessment.

164

john c. halasz 08.06.11 at 7:08 pm

This long speech touches on the failure of “Keynesianism” in the 1970’s stagflation and the rise of DSGE models and “New Keynesians”, if somewhat indirectly. Money quote:

“Let me begin therefore here by distinguishing between the three major lines of Keynesian thought that did in fact get it right—that had bearing and application on the events through which we have just passed. And I will honor the well remembered and beloved by identifying these lines with Wynne Godley, Hyman Minsky and Galbraith père.

Godley, of course, worked in the Keynes, Kuznets, Kalecki, Kaldor tradition of macroeconomic models attentive to national income accounting identities and to consistency between stocks and flows. The virtue of this approach is clarity and a comparative lack of overreaching ambition. Models of this type say nothing false which may not seem like much, but it’s a huge advantage over the starting position in mainstream economics which consists of nothing which is true. And the models direct you to check whether factual claims make sense given everything that they may imply.”

http://my.firedoglake.com/selise/2011/08/01/james-k-galbraith-the-final-death-and-next-life-of-maynard-keynes/

As for Marx, it’s not a resurrected Marx, but more a deconstructed Marx that’s relevant nowadays. I don’t want to get back into these arguments which have already been gone over here, but this is the sort of thing one learns in school and if one is a diligent student and takes notes, one never learns to question: “the LTV is a fundamentally-discredited Ricardian artifact, as far as I’m concerned.”

165

john c. halasz 08.06.11 at 7:37 pm

Oh. This is the other money quote:

“You may recall that in 1960 the Uncle of, as it happens, of Larry Summers, co-invented a concept called the Phillips curve, stipulating on very weak empirical evidence and no clear theory the relationship between the unemployment rate and the rate of inflation. True Keynesians, including my teacher, Nicholas Kaldor, Joan Robinson, Robert Eisner, a great hero of mine, and my father were appalled. The construct was doomed to collapse and when it did, after 1970, the school that most people thought of as Keynesian was swept away in the backwash.”

166

bh 08.06.11 at 7:53 pm

john c. halasz 08.06.11 at 7:37 pm

That’s a great quote. I was a student of Eisner’s, and he did a lot to shape how I think about these issues. There’s also no question that a number of younger professors considered him an anachronism, which was galling at the time, and looks even worse in retrospect. But so many of the issues were the same, really. Every few months, we got to see Bob go on the TV and argue with deficit moralists, just like his intellectual descendants do now.

167

Bruce Wilder 08.06.11 at 7:59 pm

The practical power of a thesis such as, “Keynesianism failed”, rests in its brevity, which supplies, in the absence of elaboration or modification, both ambiguity and the comforts of absolute finality.

I’m wondering if someone is going to bring this thesis into collision with Popper’s falsification standard, and suggest whether “failure” in this case qualified as a falsification. I wonder where “policy effectiveness” stands in relation to Popper’s concept; are the pragmatists about to rise from behind the Marxist shrubbery?

168

William Timberman 08.06.11 at 8:45 pm

A number of the participants at CT, principals as well as commenters, are economists. I am not. I came to this debate during the Vietnam War, when I realized, somewhat belatedly (I was born in 1943), that my friends and I, lower-middle class for the most part, and being educated at little cost to ourselves at state universities in the U.S., had been raised like prized lambs, and now were to be sent to the slaughter. More to the point, we were being sent to slaughter others, not so prized, who’d done nothing to us, it seemed to me, except stand in the way of someone’s ideology.

Quite simply, that ideology had to be investigated and questioned, if any of us were to retain any sense of ourselves as citizens. It was a case of trying to make the lie turn into the truth, so to speak. During most of the rest of my life, it was the political consequences of that imperative which engaged me (when I wasn’t completely occupied by making a living.) The economics came later, in the search for motives — what and whose they were. It didn’t matter much — to me at least — that I was already beyond the reach of any formal education in economics. We go where we have to go.

My contention here, as an amateur, is that the economics has led once again to politics, and there, as in Marx’s time, is where it’s stuck. I find Keynes et al. persuasive enough when it comes to the correct policy approaches to the potential horrors of capitalist business cycles. When it comes to how we can ever put such policy approaches reliably and permanently in place, however, I think we’re still stumbling in the dark. Marx thought that social democrats were deluding themselves. As I’ve said before in these threads, after looking at the broadest possible implications of 2007, I have to conclude that he was more right than wrong.

169

bh 08.06.11 at 9:28 pm

William T,

On the importance of class conflict, and the often-predatory behavior of power elites, I’m with you. But I don’t think it follows that social democrats are delusional. If you look at their record since Marx’s time vs. those who took a revolutionary course, I don’t think there’s any question that the former did far more to improve the lives of ordinary people.

The battles they fought aren’t ever over, and we really might be losing now. But — and this is the economist talking, I suppose — I just don’t see how that upends Keynes. If his explanations of market failures are just surface dabbling, what deeper thing replaces them? What more fundamental change should we be working towards? Autarky? Revolution? The historical record there is not encouraging.

170

William Timberman 08.06.11 at 9:56 pm

I don’t think I really disagree with you, bh. After a lifetime of this, I don’t have any answers, nor am I likely to come up with any persuasive ones in the time left to me. That’s someone else’s job now — perhaps yours or your colleagues’ — which is why I come to places like this. Not to offer advice, but to find out how you’re doing.

Still, I do know something about what questions to ask, and I also know when I’m hearing answers that don’t address significant aspects of our dilemma. About the best that anyone not in a ditch somewhere with an AK-47 has come up with could probably be summarized by the Galbraith address cited by John C. Halasz in no. 164 above. It is not necessary to hope in order to persevere, the signoff he takes from William of Orange, is pretty thin gruel, but it does at least have the virtue of taking all the variables into account.

171

hartal 08.07.11 at 1:07 am

Eisner thought the crucial blow to Keynesianism was the occurrence the 1970s of recession with high unemployment during periods when the budget deficit, as conventionally measured, was unprecedentedly high. He then sought to show that deficits, as correctly measured, actually do have stimulating and employment promoting effects that Keynesianism predicts.

According to Daniel Shaviro *Do Deficits Matter?* “Accordingly, following familiar econometric procedure, Eisnser seeks to corroborate the stimulative effects of deficits by analyzing not the actual inflation-adjusted defict but a counterfactual and hypothetical number: the employment deficit, equaling what the actual inflation-adjusted deficit might have been had unemployment been, of, say, 4,5,6 percent. On this basis, he claims to show that deficits (as adjusted) really WERE larger during the 1960s, with their relatively high growth and low unemployment, than during the 1970s, with their worse performance in both respects. He has more trouble explaining why the 1980s, which had higher deficits than either of the two preceding decades even on an an inflation adjusted, high employment basis, should have featured higher unemployment and slower growth than in the 60s.”

172

Keith M Ellis 08.07.11 at 1:28 am

Keith, it’s easy to document the fact that economists have attempted to create “science” based on various false pictures of “science” taken from philosophers and from rumors heard in the hallways of actual science.

I don’t disagree with you, but I think that’s largely beside the point. In a way, all young sciences are cargo cults to some degree. Your criticism is certainly true of many fields which are today, indisputably rigorous sciences.

More relevant is just how far the current state of economics still is from a respectable degree of scientific integrity. Recent events have demonstrated quite clearly that it’s still quite lacking.

First, as has always been the case, economics is almost absurdly ideological. That this is so is no surprise—like many other social sciences it can’t help but be. Imagine if there were a truly serious attempt at constructing a social science specific to theism. (Something like, but distinct from, an anthropology specifically concerned with religious belief, its practice, the associated institutions, and their history.) Contemporary theology flirts with this from time to time, in certain circles; but for the most part the study of the nature of religion and its implications is captive to the religious and their biases. It’s difficult for a non-ideological theology to be anything other than marginal. If it’s not marginal, it’s dominated by the ideological. That’s not an exact comparison; but economics explicitly deals with social institutions that involve strongly held normative ideas about people and the world, strong ideologies. Both the practitioners and those who support them bring those ideologies to the table.

Related to that is the second problem, that economics as a field receives its chief support from people and institutions who have very strong vested interests in validating and supporting their ideologies. I’m personally inclined to believe that were this not the case, the biases of the practitioners themselves could be (more) adequately managed within the academic context, as is more the case with some of the other social sciences. The other social sciences are still far more profoundly influenced and distorted by ideology than are the non-social sciences, but less so. Right now economists have strong professional relationships with both business and government and that badly compromises their scientific integrity. If physics had a great deal to say about public policy, then the large numbers of physicists on the payroll of the US government would be equally problematic.

Third, though, is the problem specific to your (implicit) invocation of cargo cults. The last few years have demonstrated a truly egregious failure by the freshwater school of thought, which has embraced what appears to be, and what it believes actually is, increased scientific rigor in the form of highly sophisticated mathematical analysis and theory. But it’s failed descriptively and predictively, while in contrast the supposedly lesser rigor of New Keynesianism has succeeded. That this has not even in the least been a challenge to the freshwater school demonstrates how badly non-scientific it, and by extension, economics is.

People often talk about other sciences, and especially economics, as having physics envy. But I think that this truism hides a deeper truth—physics, especially the early development of physics—is really in many ways a poor model for the development of a science. In fact, both Newton and Einstein are poor models for the development of a science; those two narratives privilege solitary, contemplative brilliance and in regard to problems which are almost crystalline in their conceptual clarity. Even chemistry isn’t much like this. Certainly biology and the social sciences are far from like this. But just within the domain of physics and chemistry and associated foundational problems, you might expect that the development of atomic theory or QM might inspire a popular narrative about how science works…but they don’t. They should, they’re more representative. But they don’t because they’re not nearly so romantic. Indeed, consider just how much the institutions of science themselves privilege the notion of individual brilliance—the idea of PIs, prizes, even just grant awards. Science is intensely collaborative and yet both popular culture and science itself are almost obsessed with individual genius.

I mention this because the economists in the freshwater schools and elsewhere who put so much effort into formulating elegant and brilliant mathematical models do so because they’ve internalized this notion that what a scientist really is, is a contemplative genius with a chalkboard. But that’s by far the exception. Most of the real world isn’t amenable to that sort of investigation and, in fact, most of science doesn’t work that way. Most of what science is, is the gathering of large amounts of data by many people, often working across generations, and careful analysis.

All that said, I take exception to the casual dismissals of the validity of economics as a science that appear in the comments here and so often elsewhere because, first and foremost, they’re usually motivated by ideology. It’s not much different from how people who find their cultural values implicitly questioned by some research in one of the other social sciences reflexively dismiss it, or all social sciences, as being cargo cult sciences. To the degree to which an economist, somewhere, validates such people’s intuitive notions and values related to economic activity, then they aren’t so quick to pass judgement. It’s self-serving.

Secondly, as I wrote, all sciences struggle in their early development with such problems. Just because economics hasn’t made its way past the things I describe above, doesn’t mean that it can’t or won’t. There’s plenty of people drawn to economics out of an authentic scientific impulse, some of them manage to retain this through their educations and beyond. Some of them will make important contributions to creating and ensuring its integrity as a science. I’m not inclined to throw the baby out with the bathwater, because it is still a baby.

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Thomas Zaslavsky 08.08.11 at 5:05 am

Keith M. Ellis, #172: In a way, all young sciences are cargo cults to some degree. Your criticism is certainly true of many fields which are today, indisputably rigorous sciences.

This statement is thought-stimulating. I would love to see your examples. I found most of your points convincing.

However, I think by talking about geniuses you’re going off on a tangent, (unintentionally) diverting attention from the right historical model. The true model provided by the early development of physics and other established sciences is not the solitary genius but the accumulation of reliable factual knowledge and the growth of dependable theories. I see the problem in economics, in this respect, as that it wants to look like advanced theoretical physics without having done the centuries (maybe decades nowadays, as things go faster) of basic factual foundational work. Obviously, it’s more difficult in economics than in physics, but that doesn’t excuse not doing it.

Biology gives a similar picture. It took centuries of factual work before Darwin could give the many factual details that convinced people that his theory was not just cute, but right, and not just right, but fundamental.

Geniuses have their place but their predominance in popular thought is not the worst problem professional economists face in developing economics as a science. It’s not staying close to facts. They like to think of themselves as geniuses with a chalkboard, but the problem is the chalkboard, not the genius complex. There’s too much leaping off the cliff flapping those mathematical eagle wings, before learning the principles of aerodynamics.

The main encouraging thing I find (in my slight knowledge of economics) is that some people are actually testing basic behavioral assumptions and finding them wanting. This is the way to progress in micro. I hope similar work is done in macro although the conditions are different.

Walt #146: I find the claim that scientists don’t know how science works bizarre.

I add my voice to say it’s not bizarre that expert practitioners are not the best analysts of how they themselves practice. It’s quite usual. Stealing a base from matt w @156, pitchers don’t know how their muscles move in making a good pitch; they know how it feels but they can’t give a rigorous analysis. That’s why we have doctors studying them to find out. Skiers don’t have to know how to apply the laws of motion and gravitation to land correctly after a jump. Physicists can take care of that but they can’t do the jumps. (Except skiing physicists.)

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Bruce Wilder 08.08.11 at 3:30 pm

I don’t think we need the formal falsificationism of Popper to recognize what distinguishes scientific thinking from ordinary story-telling: what distinguishes science is,
1.) a focus on the analysis of functional mechanism;
2.) critical method uniting a social effort.

Human nature seems to run in a counter-current to science. People seem to naturally want moral narratives: our first instinct is to demand an “explanation” of what it all “means”. And, social communities tend to seek a common faith to unite them.

Darwin’s genius was his stubborn insistence on identifying a mechanism driving the evolution evident in natural history and the variety of life, which many others had already observed. And, he didn’t fully identify a mechanism — molecular genetics would only begin that work a century later; Darwin simply outlined the mechanism: descent with modification. Before Charles Darwin, people could see the outlines of order in comparative anatomy, in the geologic record, in the classification of species, etc., but their ability to infer mechanisms tend to bog down in the imperatives of meaning and story-telling. People like Lamarck or Erasmus Darwin wanted species to “want” to adapt, or to strive against adversity, or to have a kind of intention. And, biologists still talk that way, today, ascribing to a species, “strategies” of adaptation, as a kind of convenient fictive short-hand — that custom is certainly a testament to our instinctive need to spin out moral narratives.

Astronomy struggled for centuries to emerge out of astrology. Kepler’s day job was as a court astrologer to the Hapsburgs, spinning out elaborate narratives concerning the omens portending in the starry skies. Newton was an amateur, but dedicated alcemist, presumably convinced that the “meaning” of elements, hidden in esoteric knowledge, had power.

Economists, as a group, do seem to have some considerable difficulty accepting that their proper objects of study are social/political mechanisms. Many slip easily into preaching a kind of religious faith, touting the transcendent meaning of “free” markets, the “freedom to choose”, etc. It seems to me that the Efficient Markets Hypothesis is an example of economists having some glimmer of genuine insight into how financial markets work as mechanisms, and then, slipping back into a religious faith that such markets are unquestionably and perfectly efficient: clearly a religious article of faith immune to critical method and a “zombie idea”.

The bio-physicists, who would analyze a baseball pitcher’s throw or a ski jumper’s jump, do not stand in the same relationship to their subjects, as an economist does to the businessman or the financier . . . or the government regulator of markets and business. I’m not sure that the economists will ever be able to lose their role as secular priests and oracles — at least, not in the way that the Roman Church eventually lost their responsibility for the calendar to international standards bodies, and the astronomers left the astrologers to write newspaper columns. The moral legitimacy of economic institutions is an inherent aspect of their ability to function as social mechanisms. In a mass democracy, lots of people are going to understand what is being decided in a moral short-hand narrative of one sort or another; hopefully, this does not entail believing a complete fairy tale, so much at odds with the necessity of economic function that civilization collapses by following it. The conviction with which the Euro was touted, or the balanced budget amendment rears its head or a debt-ceiling crisis can be ginned up on a moment’s notice, worries me. The guild mentality, with which economists with technocratic ambition, protect their fellow incompetents, is also not a hopeful sign.

Popular ridicule and expressions of healthy contempt, however, don’t have to come only from the populist right, and might have salutary effect. That’s why I cheer on Quiggin, and Yves Smith and Steve Keen and Jamie Galbraith and even the MMTers on occasion.

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Lemuel Pitkin 08.08.11 at 3:55 pm

Economists, as a group, do seem to have some considerable difficulty accepting that their proper objects of study are social/political mechanisms. Many slip easily into preaching a kind of religious faith, touting the transcendent meaning of “free” markets, the “freedom to choose”, etc

Yes, and mixing the normative, unobservable concepts of “utility” and “welfare” promiscuously with what’s supposed to be positive science.

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Walt 08.08.11 at 4:02 pm

But science is a deliberate, conscious process. Sure, physicists can’t explain how their brains work in coming up with ideas, but they can explain how over their careers they’ve seen an idea go from being new to being either rejected or accepted. And maybe the very top researchers are fooled by how objective and meritocratic the system is, but science is full of junior professors who are all too aware of what’s involved in getting a job as a tenured professor. I know both physicists and economists, and neither group seems to have any illusion as to how the process really works.

If you look at physics over any reasonably long window, things match falsificationism pretty well. People propose theories, they get tested, and they either get confirmed or falsified. Theories are not completely rigid, so one single experiment doesn’t settle the question, but as soon as a certain amount of data gets collected and certain simple variations on the theory get tried, the theory gets abandoned.

Economics works very differently, and Lakatos’ explanation of progressive or degenerating research programs fits better.

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Bruce Wilder 08.08.11 at 4:41 pm

“utility” and “welfare” seem innocent to me, when handled lightly — at worst an admittedly inadequate response to an obvious and unavoidable challenge in the subject matter. It seems to be that economists do their worst evils, though, when their high-minded scholastic critiques of “utility” and “welfare” as concepts lead to the esoteric formalism of, say, pareto optimality.

Conservatives maintain their intellectual hegemony in academic economics by their assiduous attention to what passes for “critical method”, from Pareto to Friedman to the Lucas Critique. Economists are socialized into their shared delusions, by the requirement that they master the prescribed techniques, which are rationalized as “rigor”. (But, I don’t need to tell you, LP; you’re living it, poor sod.)

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Kevin Donoghue 08.08.11 at 7:01 pm

Out of morbid curiosity, I’d like to see Williamson’s full Journal of Economic Literature review. Is it available online?

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Theoretically Curious 08.08.11 at 9:17 pm

A response to Lemuel Pitkin #72:

And what’s the alternative? Structuralist models that describe relationships between aggregates directly and don’t waste time with fake microfoundations.

And they are fake. Making consumption, say, the result of intertemporal optimizing by a single representative agent, as DSGE-type models do, gets you no closer to the microstructure of the economy than just saying aggregate consumption is a function of aggregate income and leaving it at that.

The level of abstraction in a model depends on the question one would like it to answer. And no good economist will confuse the model with reality.

Having said this, let me point out something that seems to confuse people: representative agent models were the frontier of research decades ago. If one were to read modern macro papers, one will find them filled with heterogeneity and frictions of all kinds (information and beliefs, endowments, preferences, lack of commitment, moral hazard, etc).

More to the point in question, there are good reasons why researchers (not necessarily macroeconomists) working with individual-level data on consumption use utility maximizing frameworks. For a good summary of this particular issue, just look at

http://ideas.repec.org/p/nbr/nberwo/15756.html

Lots of modern work is on integrating these micro-datasets into economic models. This type of work is not new as it has been going on for a while, but it seems as if the commenter stopped reading the relevant economic research a long time ago. For example, there is work on investment using firm level data. Researchers have been using for several years micro data sets on prices to better model pricing behavior. The same has been happening with international trade, housing, risk-sharing and borrowing, etc. None of this could have been accomplished if economists were stuck with the IS-LM model.

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Walt 08.08.11 at 9:34 pm

Theoretically Curious, you know that NBER papers are not actually publicly available, right?

Anyway, the micro evidence is that people are not rational utility maximizers. Life cycle models are in fact notorious failures in that regard. I don’t see how you can read that paper as describing the results of a basically successful research program.

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Theoretically Curious 08.09.11 at 12:21 am

Walt #180

Theoretically Curious, you know that NBER papers are not actually publicly available, right?

Walt, yes I was aware but I couldn’t find an open-access link. (The NBER policy regarding access can be found here.)

Anyway, the micro evidence is that people are not rational utility maximizers. Life cycle models are in fact notorious failures in that regard. I don’t see how you can read that paper as describing the results of a basically successful research program.

I don’t know what micro evidence or what notorious failures you are referring to. There are several known failures of the basic model, as discussed in the section “Alternative models” in the referenced survey paper. Each of these have generated lots of research on their own, and none of them have led researchers to throw the baby with the bath water. I recommend reading that paper if you have access to it so you can see the state of the discussion (at least for consumption).

But a more general point I wanted to make is that economists are not writing models and looking at them in awe without contrasting them with data, as implied by many of the comments in this thread. On the contrary, research is ongoing and there is lots of back and forth between data and models, facilitated in part by computing power, and also by new and richer micro data sets.

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Nathanael 08.09.11 at 3:59 am

Greg Ransom, you’re just wrong about Hayek “disproving” the Popperian model of the improvements of scientific knowledge. I have no idea what Hayek actually said, but your version is just wrong. (Kuhn has accurately demonstrated that the Popperian model is not how scientists actually behaved, but Popper remains correct that for knowledge to advance, it must be done in an essentially Popperian fashion.)

Your specific example is wrong and I’d like to be clear about that for the audience. The Darwinian theory of evolution makes numerous falsifiable predictions, mostly relating to what combinations of genetic features will be found in nature — no creatures with insect legs and frog heads, for instance. (And indeed, stuff caused by viral activity means that the original version of it is false, and it had to be revised to the modern theory of evolution by including viral activity.) The theory also makes some rather impressive predictions about the “design” of things found in life: specifically, that “new” anatomical and metabolic features will be jury-rigged from ancestral designs for other things — that there is nothing “designed to purpose”. This has been amply shown over and over again to be true, and a discovery of a genuinely properly designed organism would immediately raise suspicions that it had *not* evolved, but had in fact been genetically engineered.

Falsification is for real. (Although it’s a silly term, since “falsified” hypotheses are usually replaced by modified hypotheses, not wildly different ones.)

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Nathanael 08.09.11 at 4:14 am

Keith Ellis, Thomas Zavlasky: I really like your general analysis of what the freshwater economics types have been “doing wrong”. Cargo cult copying of the images of science (lots of math!) without actually doing, well, science (lots of data collection and analysis! Attempting to come up with hypotheses which fit the data! Changing your hypotheses when they don’t fit the data!)

Cosma Shalizi, thanks for pointing out that Popper didn’t really understand statistics, though it’s really a minor point. Statistical theories can, of course, be falsified. Statistically. :-) If the Freshwater Economists made a statistical theory and then stated “We admit that current evidence is that this theory makes wrong predictions 99% of the time”… well, for all practical purposes we’d call that falsified and move on.

If on the other hand we have a statistical theory which makes right predictions most of the time, but wrong predictions *the percentage of the time we expect it to*, then we call it “right so far” while researching something else.

If it makes wrong predictions slightly more often than we expect it to or in a statistical distribution of error other than the one we expect, we start researching what is going on because the theory probably is falsified but a tweaked theory will probably work.

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Theoretically Curious 08.09.11 at 4:35 am

@Nathanael.

You are mischaracterizing economics by attacking a straw man. There are lots of data collection efforts and lots of worry about model fit. Just open an economics journal and you will see this. The division between freshwater and saltwater is also misleading as it doesn’t accurately reflect the reality that, methodologically, most schools have pretty much converged.

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john c. halasz 08.09.11 at 4:36 am

Theoretically Curious:

Angels. Pin-heads. Dancing. (Nothing substantive to say here. I just like throwing that one back at ‘em).

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Alex 08.10.11 at 1:27 pm

Williamson and Ivansml argue that DGSE broadly is a technique, and thus no more subject to falsification than, say, Markov chains, molecular dynamics, or PCR.

I submit that if PCR had failed in making useful observations of how much of each DNA base there was in a sample as often and as badly as economics has failed, we’d call it falsified and use something else.

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Alex 08.10.11 at 2:06 pm

Also, John, they called George F. Warren an obscure agricultural economist…and now look at how famous he is!

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