Sanjay Reddy on economics

Also interesting is his discussion of the gap between theoretical and applied work – this is a problem everywhere I guess, but I certainly find it to be a big one in economics. Work on DSGE macro is a prime example, where internal theoretical concerns dominate at the expense of practical relevance. The same is true of decision theory where I do most of my work – the gap between theory and application is much wider than it needs to be.

I’ve been reading Debt which also has some ideas about the origins of the market. I’d love to see a review of it, given that David Graeber has had a mention or two here before.

Best line comes at the end: “One of the most traumatic experiences of my life was my first week or two as a graduate student in economics at Harvard… Because the set of presumptions about as to what is important and how the analysis should be undertaken were rather alien and alienating to me coming back to economics after exposure to a broader social science which took reality much more seriously.

I didn’t know anything about Mr.Reddy before!
It’s interesting because I had a very similar experience following, as an alien, the recent economic debate.
Here I have explained my last point of view on the issue: http://europlay.blogspot.com/2012/01/boiling-frog.html

Unfortunately I do not know the entire work of Mr.Reddy, so I have to base my comment just on the interview.
I perfectly agree with him that economics are imbued of assumptions about what is good and what is bad. And I perfectly agree that the first step is to acknowledge this.
I didn’t do any research on economics so I have no experience at all if it could be possible to work on economic problems without these kind of assumptions.
Anyway I don’t think any kind of science could be science when it is based on trying to establish what is good and what is bad, because is simply impossible to establish objectively what is good and what is bad.
I think that we can establish what is good and what is bad subjectively, when we’re looking in ourselves, or inter-subjectively when we are interacting with others. But an inter-subjectively established good is just a conventional good, not an objective one, so it’s not science, it’s politics.
Personally I do not think there is something bad in deciding in someway a conventional good and trying to pursue it. But the point is that this is a political decision. When we take political decisions in democratic systems my view of the good counts 1 as that of everyone else. It’s not that a certain dude, just because of applying what the economic model says to be The Good, counts 1 million, no that dude still counts 1 like me and anyone else.
Otherwise we get a kind of economic-totalitarianism, it doesn’t matter if it is a Keynesian dressed totalitarianism or a Neoclassical dressed totalitarianism, a fresh or salt water totalitarianism and so on. We are trying to decide what is good and what is bad for all of us on an objective base, but there isn’t any objective base for that.

@Dear Mr.Conselheiro
you’re very kind in pointing out my misunderstanding, but as you put that I cannot understand anything more. If you wish to explain something more to me it would be good, at least in my opinion. Of course you’re not compelled to do that in anyway.

I wouldn’t frame it as “what is good and what is bad”, but rather ‘who it serves’, what political/ideological ends.

I was tempted, earlier, to complain that I found the interview with Reddy pretentitious and insipid — more the fault of the interviewer than Reddy, perhaps, but I didn’t find much that explained the poster’s enthusiastic affirmation, beyond the quip about reality.

Has capital-e Economics distanced itself from “any evaluative or otherwise ethical concerns”? Does it pretend to be value-free? I’m sorry, but I simply do not recognize the referent for such claims about Economics.

Way back when, textbook economics made a formal distinction between the “normative” and “positive”, but it was never to exclude the “normative”.

There’s a division in Economics between the orthodox and everyone else. I don’t know of any other social science with such a strongly patterned “orthodoxy”. That division reflects the way in which the right-wing has repeatedly over the decades won the struggle over methodological criticism in Economics, so that they define “rigor”, that all-important boundary between the orthodox and the barbarians at the gate. That “rigor” (some might say, “rigor mortis”, given the production of Zombies) orders values and valuation in Economics, but doesn’t exclude it, per se. That ordering, from Pareto efficiency to the EMH to the Lucas Critique, not surprisingly, favors strongly conservative convictions and views. In fact, much of the apparatus of the policy-oriented Macroeconomists consists of little more than mathematical formalizations, to justify strongly typed normative conclusions about whether a particular, stylized policy is pareto superior, a purely qualitatitve judgement at base.

The idea that economics, while studying how societies organize the production and distribution of goods, could be anything, but entangled — indeed, obsessed with — value, should be immediately recognized as absurd. But, is there really anyone making such a silly claim?

It seems to me that it is not values, but judgment and institutions, which have been under attack from the political and ideological right. The “orthodox” have their heads so far up their posteriors, that they cannot recognize a trillion-dollar housing bubble, or understand it as a threat to well-being. And, they have elaborate and formal justifications for such ignorance and stupidity. I see a detachment from reality, but not from “values”, per se.

@Bruce – there’s an ambiguity here (one exploited very much by the right) between two concepts of orthodoxy (or, as it’s called from the inside, ‘mainstream economics’). One, includes essentially everyone except the self-consciously heterodox (Marxists, Austrians, institutionalists and so on) while the other is what used to be called the Chicago School, in which EMH, Lucas critique and so on are accepted. Someone like Krugman (or me for that matter) would count as mainstream on the first definition but not on the second.

Of course, as you say, the methodological insistence on rigor favors the right within the mainstream, as well as excluding the heterodox. A comparable instance is the use of the claim “capitalism has prevailed everywhere” to argue for the specific form of capitalism prevailing in the US as against social democratic alternatives.

It’s interesting to hear talk of ‘normative foundations’ for economics. But isn’t it the role of democratic politics to reconcile the implications of applied economic practice to ordinary practical/moral knowledge?

Also, I’m suspicious of the idea that it’s possible to list a set of ‘values’ that should then go on to inform the application of economic theory.
It assumes there is agreement on a set of moral rules that (apparently) exist outside the economics profession, and that the only thing necessary is to embed applied economics within these rules. I’d question whether there’s much agreement about the moral rules in the first place.

How do normative rules emerge? How are they generated? Do they come via a Rawlsian Original Position? Or some kind of continuous intersubjective Habermasian discourse?

Also, whilst I am not an expert, I wonder whether economists aren’t being a little harsh on themselves (and as a consequence further misleading the rest of us) when they self-flaggelate about ‘not predicting’ this present crisis of capitalism. As I understand it, some economists did predict it. The reasons the US, UK etc failed to heed these predictions are nothing to do with economics. The reasons are political/ideological.

And it’s the latter that seem to me to be in want of moral justification.

Any challenge to pluralist liberalism will be met with the reiteration of the truisms of pluralist liberalism, as though the challenger had never encountered them, or had carelessly forgotten them and needed to be reminded.

Michael Harris @ 19

Economics has always been oriented to “process”, where the process in question is “the market”. All the most basic concepts, including “efficiency”, are defined within the conceptual apparatus of the perfectly competitive market and a canonical catalog of deviations, or “market failures”.

The philosophical framework of evaluation may be utilitarianism, but it is most definitely a utilitarianism in which the subjective enjoyments supposed as outcomes are treated as not just fundamentally unobservable, but as almost unquestionable and taboo. “Efficiency” is not a matter of measurable outcomes — it is strictly a process concept. And, indeed, the immunity to evidence and reality, which many economists exhibit is deeply related to this religious devotion to a faith in efficient market processes, the outcomes of which can not be questioned by the faithful.

What’s “weird”, I think, about this “process” orientation, is the absense of mechanism: the invisibility of the invisible hand in what is usually a merely metaphoric market.

I will venture the hypothesis that it is in the denial of mechanism and determined ignorance of institutional reality that technocratic economics may earn its curious reputation for being proudly value-free.

The glaring example in the lee of global financial crisis is a technocratic macroeconomic policy, devoid of any substantive concern for the regulation of banks and financial instititution. Jamie Galbraith has remarked that when he raised the question of financial fraud at an INET conference and at an IMF conference on the causes of the financial crisis, he was greeted with silence.

These are very much questions of values, calling for righteousness, but they call in vain, in a room full of economists, even economists ripe with “new ideas”.

Follow-up (I got lost in my reply as I was typing it):

The philosophical framework of evaluation may be utilitarianism, but it is most definitely a utilitarianism in which the subjective enjoyments supposed as outcomes are treated as not just fundamentally unobservable, but as almost unquestionable and taboo.

Here’s the default position, as I understand it. (By all means, critique away.)

Individuals are assumed to be the appropriate judges of their own well-being. Individual agents endogenously and voluntarily interacting are assumed to deliberately promote their own well-being, and non-deliberately improve the well-being of those they interact with. So, yes, utility is unobservable, and increased utility is presumed to be the outcome of voluntary action (“otherwise why do it?”).

Therefore the default position is to allow individuals to interact voluntarily unless there is deemed to be an a priori reason to believe that the individual action is welfare-reducing somewhere else (“market failure”). Then the question is, what to do? And then there will be lots of discussion/argument about what to do, with options ranging from “do nothing” through “do complex exercise in mechanism design” to “find something to nudge” to “implement big top-down policy initiative.”

This will be obvious to many, I am sure, but I’m spelling it in hopes of getting you to be more explicit about your own argument. Yes, human welfare is fundamentally unobservable, and yes, obviously “revealed preference” logic can be taken to extremes (as in, self-evidently individual X is optimally obese because if they weren’t optimally obese, they would choose to not be obese).

But this non-observability is intrinsic, it seems to me, so I think I am missing a key point here.

“Efficiency” is not a matter of measurable outcomes—it is strictly a process concept. And, indeed, the immunity to evidence and reality, which many economists exhibit is deeply related to this religious devotion to a faith in efficient market processes, the outcomes of which can not be questioned by the faithful.

Well, I work/teach in the broad areas of agricultural and environmental economics. Agricultural economics is good for learning about “government failure” (poor policy design, unintended consequences, rationalisation of redistributive policy actions), while environmental economics is good for learning about market failure, and taking it seriously.

You can’t do environmental economics and have lots of faith in market processes. We do things like surveys asking people to consider various trade-offs in potential environmental policies (“non-market valuation”). I submit that this is “efficiency” as a matter of measurable outcomes, not purely as market process. Of course, if you’re e.g. Mark Sagoff, you think this whole enterprise is misguided anyway, and that’s a non-trivial conversation to have.

Anyway, I don’t know if I’ve misinterpreted much of what you’ve said, or whether I’m just defending the status quo a little too enthusiastically.

John,

Point 1: agreed at least in principle. I was attempting to present a favourable kind of straw-man position in order to try to pin down the nature of the critique(s) above me. I had meant to make a side-note (particularly about firms, but organisations/institutions more generally) that we use “individual” very loosely, and too broadly, in many of the meta-narratives of economics (as though firms or governments really have nicely defined objective functions), but like I say, I got a bit lost in my own other bits of detail.

Point 2: quantitative estimates. This is interesting, although I am no sure what to make of it. As in “So, what are the implications of this for how I might do a benefit-cost analysis?”

Anyway, as far as dealing with my undergrad students goes, I try to downplay efficiency (to some degree) and place more stress on the more limited but practical notion of cost-effectiveness. There will usually be multiple ways to skin a cat, but some of those ways will cost much more than other ways, and it’s probably sensible to investigate those costs. Particularly if you’re dealing with a finite government (e.g. agency) budget constraint.

Two architects. One was (is) a professor at a major Australian university, and one who built a huge building at a major Californian university and then talked a boatload of utter bollocks about it at a public forum while its occupants seethed.

I could talk about the integrated social science initiative at my university (now defunct) that I was involved with. It was actually interesting in large measure — I mean, I read CT (rarely commenting) because it is a collection of above-average social scientists who do interesting work and have interesting things to say — but there is a wide range of quality in social science research (including in economics), not least because it’s difficult to do well, easy to do at a mediocre standard, and it doesn’t have the relatively settled methods of the physical sciences. Social sciences and humanities have been particularly parochial/insular in Australia because historically many of our academics have been trained at home and then often employed by the department they studied in.

(Economics, in Australia, internationalised some time ago. If you think all economics is rubbish by definition, this won’t matter, but in effect, the average university department here is closer to international standard in economics than it is in various other disciplines.)

Anyway, one of my jobs was to be on a committee evaluating social science research around the university for purposes of awarding prizes. Some of them made fascinating reading, although it was not clear in a number of cases whether there was a distinctly identifiable model of human behaviour at all. The empirical pieces tended to be inductive rather than deductive, but they were interesting to read and thought provoking. But the kicker was the PhD award, where we read three. I read one in detail, because while it wasn’t my discipline, it was in a topic area and literature I was familiar with and had a number of references in the bibliography I was familiar with. I started reading it sympathetically, hoping I’d find the take on a topic I was familiar with to be a fresh and challenging one.

All I’ll say (since I’m posting under my own name) is that had I been an external examiner on this PhD — which, don’t forget, was being put up for a prize — I would have failed it. It was a travesty. I even got to read the examiners’ reports, none of them by international scholars. Lazy, uninsightful and self-satisfied.

I had a getting-to-know-you conversation with my university’s new Vice-Chancellor soon after he started. He himself expressed some consternation about social sciences at the university, giving the example of an academic who had sent a young post-doc to discuss their work with the VC. The VC was immediately struck by some key weaknesses in the work which the young scholar seemed oblivious to. But the deeper concern was not that a sub-standard post-doc was working at the university; it was that there was a senior scholar who thought this post-doc was sufficiently impressive to send to meet the new VC.

I could regale you with the tale of a science colleague who is a born-again social scientist and believes he is doing “complex systems non-equilibrium economics”. He’s done this by (with his co-authors) imposing ad hoc behavioural rules of thumb (when they’re not arbitrarily assuming exogenous border prices). I wrote him about 10 pagges of critical comments ending with 20 questions about the paper, to which he has yet to respond. But if you don’t want to take my word for it, I could send the paper and my comments on it to John Quiggin. Since it purports to model an agricultural river basin, and John’s interested in Australia’s Murray-Darling Basin, I’m sure John would be interested in how someone else is analytically representing an economic model of a productive basin.

I could also talk about the planner, working for a state government department, who I did some sustainability-related consulting work some time back. He was full of ideas, full of notions, but he was all over the shop. Incoherent as hell. The small consulting team would silently laugh at me in our several-hour meetings as I’d grapple with him and try to keep a clear eye on what were trying to do; at some point, they’d see my eyes glaze over as my brain just gave up and shut down, and they would then take over our end of the discussion and bring it some kind of conclusion.

Of course, this is all anecdotal, and about individuals more than about entire disciplines. But those individuals exist — and in some cases rise quite high — because their scholarly disciplines have been pretty undisciplined.

If economics is to get fingers pointed at it — and it should — it doesn’t deserve to be singled out. Every social science discipline, particularly the ones with pretensions to policy relevance, need to lift their game.