How the Dismal Science of economics got its name

August 31, 2011 6:27 AM

JS Mill vs. Thomas Carlyle Economics may deserve its reputation for being hardnosed and calculating, not warm and fuzzy. But sometimes it is its critics who are lacking in the spirit of humanity.

Original texts of the Mill-Carlyle debate.

posted by Philosopher's Beard (48 comments total)

Thank you for posting this. Just read the first essay and was fascinated. I had previously figured Charles Dickens to be made of unalloyed goodness.
posted by bonobothegreat at 6:50 AM on August 31, 2011 [1 favorite]

I had previously figured Charles Dickens to be made of unalloyed goodness.

The man who dumped his family for a mistress young enough to be his daughter? Lots of contradictions going on in friend Dickens.
posted by IndigoJones at 7:39 AM on August 31, 2011

Awesome. I wasn't exposed to this side of Mill and Carlyle in my English major career.

So in what way is economics a science? From the outside it looks like a pseudoscience used to mask or rationalize political agendas, but I know looks can be deceiving. Has the study of economics made progress since Mill and Carlyle's day in terms of modeling reality in a way that predicts future events? If so, how sure are we that economies aren't being shaped in the image of economist models rather than the other way around?
posted by jwhite1979 at 7:57 AM on August 31, 2011

Is economics a science of ideology?

Economics is the study of the economy and economic phenomena, as biology is the study of living organisms. But like evolution in biology it can come up with profound foundational insights that their proponents claim crowd out other perspectives (like Aristotelian or creationist approaches to biology). Is this 'ideology'? Or how science progresses by improving on what came before.

Adam Smith for example was following in the footsteps of liberal political philosophers like Locke, to show how well the institution of markets could co-ordinate activities between strangers non-coercively. Thus he was in a sense engaged in an ideological debate with people like Hobbes, Rousseau, and various theocrats, who believed that without some totalitarian religious and moral police society would collapse into anarchy. He was arguing that liberalism was good. But he was also engaged in an empirical debate about the way the world works. He was arguing that liberalism worked better (and could work even better still if his 'modest proposals' were taken up).
posted by Philosopher's Beard at 8:16 AM on August 31, 2011

Fascinating stuff! Mill and Carlyle had apparently been friends in the 1830s, which must have added a piquancy to their dispute. From the wikipedia article on Carlyle:

Within the United Kingdom, Carlyle's success was assured by the publication of his three-volume work The French Revolution: A History in 1837. After the completed manuscript of the first volume was accidentally burned by the philosopher John Stuart Mill's maid, Carlyle wrote the second and third volumes before rewriting the first from scratch.

There's a little more about this incident here.
posted by misteraitch at 8:33 AM on August 31, 2011 [1 favorite]

If you only examine economics from the outside,then whatever conclusion your draw about it and it's value is not going to tell you much.

I don't know what is meant by questions like "is Econ a science?" what does the speaker mean by "science"? We build testable theories of humans, and the perspective is mainly one based on constrained optimization, stable preferences, and equilibrium. Claims that economists believe rationality because they assume rationality in their models would be pretty damning I guess if we require scientific models to be "true", whatever that is. Scientific models are lies though - whether in physics or economics. See just about any philosopher of science on this (eg, Nancy Cartwright).

I started my career in literature then economics, which is now my trade. I went in an anarchist and came out a moderate democrat. Seems like economics with it's methodology cuts at non-testable ideologies without prejudice. That's my experience anyway.
posted by scunning at 8:38 AM on August 31, 2011 [3 favorites]

If you only examine economics from the outside,then whatever conclusion your draw about it and it's value is not going to tell you much.

This, of course, is the well-known "I have a degree in X and you don't, therefore you cannot possibly talk sense about X" fallacy.

Very tedious.
posted by Decani at 11:12 AM on August 31, 2011 [1 favorite]

IMO, economics as an entire field grossly underestimates the roles that politics and culture play in shaping economic behavior at the level of markets and individual actors. Economic theory also doesn't address its own inherent non-linearity: Economic actors informed by an understanding of economic ideas they believe they can apply to their own benefit will alter their behavior in direct response to the dicta of whatever economic dogma they subscribe to--so it's impossible to know to what extent our accepted economic ideas contribute to a sort of group-think effect, and are really more properly understood as one of the many forms of human cultural transmission, rather than as a science.
posted by saulgoodman at 11:22 AM on August 31, 2011

Decani. I think you usually need a degree in theoretical physics to know enough to interact critically with theoretical physics papers. I also think that you need to listen to a ton of rap music to critically engage rap music. I think a person must spend a lot of carefully spent time learning abou something to understand it well enough to speak competently about it, let alone constructively. You don't?

No fallacy in there. Common sense. The definition of ignorance may very well to critcze something you do no understand. Criticism, to paraphrase TS Eliot, comes from within. Does not mean you have to be an economist or have a PhD. But as I do have one, and I know how challenging the material was for me to learn initially, I usually am skeptical of people who have strong opinions about something that they will admittedly acknowledge themsces they have never studied, or not very carefully.
posted by scunning at 12:22 PM on August 31, 2011 [1 favorite]

Saulgoodman- well that's about as ridiculous a claim I've ever heard. Are you not familiar with public choice? New institutional economics? Economists have been studying the interplay of culture, government, markets, etc since the beginning.Again, this just makes my point for me. You are unaware of what work is done and have a straw man understanding of a subject.
posted by scunning at 12:27 PM on August 31, 2011

I think a person must spend a lot of carefully spent time learning abou something to understand it well enough to speak competently about it, let alone constructively. You don't?

Are you joking? This is the INTERNETS! Someone who's an expert in a subject has much less credibility than someone who just walks in armed only with with a "healthy skepticism", especially is the skeptic's ideology is in the right place. The status economy is the real fight here, not mutable and ephemeral facts.
posted by happyroach at 12:44 PM on August 31, 2011 [2 favorites]

Economists have been studying the interplay of culture, government, markets, etc since the beginning.Again, this just makes my point for me. You are unaware of what work is done and have a straw man understanding of a subject.

It's not just that there's "an interplay" among these things, though, IMO. All that's underpinning economics is human psychology and culture. There's no real-world foundation for economic theory. Money is a set of social conventions and rules.

It's all just built-up out of naive abstractions and over-generalizations about human social and cultural practices and belief systems. And anytime, our observations don't fit our models, they're discarded.

I just can't see what the scientific foundations for economic theory are supposed to be, exactly. Why do we need a field of science concerned with how people do/should engage in commerce? It seems to me those kinds of discussions should almost always center more on shared cultural and social values than on cold economic theory, which likes to masquerade itself as an objective, value-neutral enterprise, when in fact, economic systems have no independent goals whatsoever, much less any predisposed way of naturally working.
posted by saulgoodman at 1:15 PM on August 31, 2011 [3 favorites]

An economy is an emergent phenomena, like culture, or climate, or indeed organic life. So what's wrong with having a specialised discipline dedicated to understanding it? After all life is just a bunch of molecules arranged in certain ways, and we still think biology makes sense as a single scientific domain.
posted by Philosopher's Beard at 1:24 PM on August 31, 2011 [1 favorite]

And I would characterize it more as "theorizing about" than "studying." If Economics were really like a natural science, it would have empirical roots. But it still has trouble with empiricism, despite more recent efforts to make economics more empirically grounded.

Call this conflict between empiricism and economics, which arises from the apparent disconfirmations of economics and the difficulty of testing it, "Mill's problem." Mill attempted to solve this problem by maintaining that the basic premises of economics are empirically well established by introspective psychology or by experimental testing of technical claims such as the law of diminishing returns. These well-supported premises state how specific causal factors operate. If the only causal factors influencing economic phenomena were those specified in these premises, then the predictions of economic theory would be correct. But economic phenomena depend on many causal factors that are left out of economic theories. Consequently, the implications are inexact. They are always imprecise, and when the factors left out are of particular importance, the predictions of the theories may be completely mistaken. This inexactness explains why the implications of economic theories are so poorly confirmed, and consequently the problems do not show that there is anything mistaken in the fundamental generalizations of economics. In Mill's view, the empirical confirmation of economic theories is indirect and "deductive." It derives from the confirmation of their premises. The inductive method of "specific experience" cannot be employed because of the multiplicity of causes. Furthermore, since there is no way to incorporate a much larger number of causal factors without destroying the "separateness" of economics and subsuming it into a general social science, this inexactness is an inevitable feature of economics as a distinct discipline. Economics is unavoidably a science of "tendencies" only.

So what's wrong with having a specialised discipline dedicated to understanding it

I guess I don't believe it's really an emergent phenomenon--at least, not one that can be separated out and understood in any scientific way independently from the cultural, psychological and political factors that come to bear. And macro economic ideas are often used to justify terrible political situations and cultural attitudes/practices.
posted by saulgoodman at 1:34 PM on August 31, 2011

This, of course, is the well-known "I have a degree in X and you don't, therefore you cannot possibly talk sense about X" fallacy. Very tedious.

It is not, and all you are doing is parading your own ignorance. If you want to critique economics (and there is plenty to critique about it), then you should have at least a basic familiarity with the concepts. You don't have to go to college for this, you just need to read some books on economics. Even an AP study guide or an undergraduate review text would allow a big leap forward. Economics as a field is about applying a set of not-too-complex analytical techniques to the distribution of scarce commodities, and trying to infer from that what factors affect the distribution. At a more advanced level it increasingly resembles a subset of calculus (on the theoretical side) or social psychology (on the applied side).

I do not have a degree in economics and gained my knowledge via self-study, but greatly enjoy the subject and think it ought to be taught in grade school from an early stage. Financial illiteracy is a huge problem and a large part of that results from an ignorance of basic microeconomics. Here are some books to get started

Barron's business review - a nuts-and-bolts college review text. Excellent (like all books in this series) but somewhat unfriendly if you're not numbers-oriented.

New Ideas from Dead Economists - a great tour through the philosophical side of economics with little or no number crunching, from Adam Smith up to JM Keynes. Unusually, includes a chapter on Marx and his economic ideas. A good guide to 'why economics matters' rather than 'how to do it'.

The real price of everything is a large brick containing the key works of Smith (markets), Malthus (shortages), Mackay (herds), Ricardo (trade), Veblen (sociopolitics) and Keynes (employment).

The Firm, the Market and the Law is by Ronald Coase, one of the most influential and least-known Nobel laureates. He is a founder of the 'Chicago School' and is still lecturing at the age of 100. Deceptively simple, the very readable essays in this book answer 3 basic questions: why do companies exist, how should prices be determined, and why carrots and sticks provide the same results.

Law's Order is an accessible exploration of this last point in the context of law and policymaking. Probably the best overview if you want to understand regulatory/justice issues. If you prefer steak to hamburger, then try Economic Analysis of Law. Om nom nom.

The status economy is the real fight here, not mutable and ephemeral facts.

Sadly true. It's not that I think economics has all or even most of the answers, but I am sick to the fucking back teeth of people who are too cool for school thumbing their noses at economics and making self-important statements about its supposed failures - especially on MetaFilter, where learning and substantive argument used to have greater currency. It's like trying to discuss evolution with people who demand citations from the Book of Genesis.
posted by anigbrowl at 2:03 PM on August 31, 2011 [2 favorites]

Saulgoodman. Are you quoting Hausman?

On the issue of tendencies, Mill's problems with the organic composition of causes in economics (unlike chemistry and physics where they are arithmetic) would seem also to apply to sciences like medicine and biology. Medicine is a particularly obvious anaology, where we have a lot of knowledge of particular causal mechanisms, but still have trouble putting them together and understanding why they same drug may have quantitatively and qualitatively different effects on different people.

And as for evil macro, what about evil biology, when those eugenicists took up Darwinian theory and evolved it into 20th century race theory?

So on neither charge do I really see how your arguments cut against seeing economics as ideology rather than science, at least if we accept these other subjects as sciences.
posted by Philosopher's Beard at 2:09 PM on August 31, 2011

It's not just that there's "an interplay" among these things, though, IMO. All that's underpinning economics is human psychology and culture. There's no real-world foundation for economic theory. Money is a set of social conventions and rules.

Economics. Is. Not. About. Money.

If people would only remember one thing from this thread, I wish that it would be this. Money is just one (among several) methods of measuring things in economics. Economics is no more about money than athletics is about geography, despite the fact that athletics consists of running or throwing things from one place to another and all athletics events are scored on distance covered or time to cover a certain distance.

Look, imagine you're on a desert island, all by yourself. You can spend time fishing, or gathering coconuts, or maintaining a shelter you build out of coconut leaves. You have 24 hours in the day and those three activities have certain costs (in time) and benefits (in energy gained or saved). What is the most efficient use of your time? That's an economic question, with no money in sight. In fact you could fill an entire semester of microeconomics with exploration of that one situation, without any money or other economic actors in sight.

Should I buy or rent? Is this insurance policy good value or not? Would I be better off going to community college or getting a loan to do a 4 year degree? What's the best mix of food to keep in the refrigerator? If I have a garden, what ought I plant in it? These are all economic questions.

Once again, economics is not about money. Finance is about money. Finance and economics are not the same thing at all.
posted by anigbrowl at 2:28 PM on August 31, 2011

Hi Anigbrowl.

You seem to be defining economics as instrumental rationality for individuals. But I think there's much more to the economy and economics than that. I want to know about how markets work; why recessions happen and what to do about them'; the role of banks, and bank regulators; how to see if we're richer this year than last; how to get poor countries on a path to success; how to tell if a dam is worth more than a forest; why we have unemployment when we're so rich; the whole kaboodle.
posted by Philosopher's Beard at 2:44 PM on August 31, 2011

You seem to be defining economics as instrumental rationality for individuals.

Oh heavens, no - I got interested because of those same macro questions, but fell in love with microeconomics the same way some math aficionados fall in love with number theory. I'm emphasizing the utility for the individual because economics is often presented in education and the media as something that happens from the top down; this dogmatic approach alienates many and confuses many more, and has the same sort of problems as organized religion. Engaging with micro-economics provided a useful bottom-up perspective that helped to bring many abstractions into focus, and whose techniques can often be applied to everyday problems as well as parsing the big questions.
posted by anigbrowl at 3:10 PM on August 31, 2011 [2 favorites]

I don't know what is meant by questions like "is Econ a science?" what does the speaker mean by "science"? We build testable theories of humans, and the perspective is mainly one based on constrained optimization, stable preferences, and equilibrium.

By "science" this speaker means a discipline where hypotheses are made and tests are run to gather data which will either support or undermine the hypotheses, and which becomes more stable over time as the collection of new data conforms to expectations based on the collection of old data.

By pseudoscience I mean a discipline that speculates about the meaning of data without actually having a way to know right from wrong, yet which argues that causal relationships exist between the real world and the discipline's unfounded models.

My point was that for an outsider, it looks like the latter is the case. I'm willing to believe that looks are deceiving in this case. It's a bad sign for the validity of a discipline, though, when a proponent says, "Well, you have to go to school for this stuff before you can understand why it is valid."

I'm a rather bright guy. If you have an argument that shows why economics is a valid science according to the standard I mentioned (and I think that's a pretty well-established standard for science), then you should be able to make the argument in clear language without any jargon. If you can't, fine. I'll move on.
posted by jwhite1979 at 4:57 PM on August 31, 2011 [1 favorite]

My last comment sounded way more combative than I meant it to. Sorry about the tone. I had to use the bathroom.
posted by jwhite1979 at 5:19 PM on August 31, 2011 [1 favorite]

jwhite1979: "Sorry about the tone. I had to use the bathroom."

I think I've found my new excuse for everything!
posted by pwnguin at 10:26 PM on August 31, 2011

I don't know about you, but I become all surly when I'm trying to make a point when I really have to pee. This could explain a lot of the bar fights I [pretend to] have been in.
posted by jwhite1979 at 3:13 AM on September 1, 2011

jwhite1979. I'm glad your a smart person. But I think your idealised image of science - pinning down event regularities under universal rules - is too simplistic. It doesn't cope with any subject where the parameters are subject to high variability, from ecology to climate science. Nor does it cope with much of modern physics, like string theory, which is very theoretical (if not metaphysical). Anyway, let me try to convince you that economics, whether or not it is a "science", is capable of providing significant and systematic knowledge of how the world works.

Take a core issue in micro-economic theory. When people earn more per hour, they are richer so they can afford to buy more things like holidays and books. But the opportunity cost of leisure time rises, since every hour they spend reading or on vacation now costs more in foregone wages. So economic theory identifies 2 clearly significant but opposite mechanisms that would seem to be in operation: leisure is more affordable so consumption will increase; leisure is more expensive so consumption will decrease. But it isn't able to predict what the outcome will be in terms of the equilibrium between these two without additional information about contingent factors such as personal preferences (which are in turn shaped by cultural values e.g. in the rich world Americans work very long hours, Western Europeans rather less.) What this means is that theoretical economics doesn't tell you what to value or how much to value it. Instead it gives you a systematic way to work out the consequences of your values under different conditions. I guess that you would say that this is merely deductive logic rather than empirical science.

OK so economists also engage in more empirically oriented work. For example child labour in poor countries turns out to be very responsive to labour prices. Consider here the equilibrium between sending children to work or school in a recession. Economic theory points out, and empirical survey research backs up, that parents will face different trade-offs depending on their degree of poverty. When parents are very poor and their incomes fall, they are likely to withdraw their children from school and send them to work even for pitiful wages, in order to meet the household's minimum subsistence requirements. On the other hand, when parents are slightly better off, they are more likely to focus on the fact that wages for children have fallen considerably and consider that the opportunity cost of sending them to school has fallen. So economists do make a prediction with policy relevance: child labour among the poorest will increase; child labour by better off households will decrease. And there are policy recommendations that follow. For example, a small payment to the poorest households for sending their children to school might be sufficient to shift the equilibrium significantly and radically (and cheaply) reduce child labour even during a recession.
posted by Philosopher's Beard at 6:09 AM on September 1, 2011 [1 favorite]

saulgoodman, explain to me what you think the foundations of Econ are. What are you going to study first in a proper treatment? I teach masters level micro; it's not MIT, and it isn't principles. I start with a few things: math review up through matrix algebra and even then only really so I can get them to remember what a determinant is so they can use the hessian and bordered hessians for optimization problems. Then I explain what a model is: it's a lie. It is based on untestable assumptions. So is physics, so is likely every single human enterprise. Then I personally start with utility. I explain the foundations in terms of the assumptions we make about the kinds of functional forms we will ASSUME: transitivity, completeness, continuous and and what each means. Then I build the idea of "preference" which is all that utility is. It is a function that uses ordinal numbers to rank order objects, usually called "consumption bundles".

Then what? Then the basic problem: assume the modeled decision maker wants to move as high up the preference ordering as she can but must buy the bundles at fixed prices per unit using her fixed non-labor income. No savings. No time. No work. Just about as abstract a problem as it gets. Why? Why engage in such abstract obviously false storytelling? Two answers. One, to restate the former, I could make it more "realistic" but it would always be a false representation. Even an ethnographer knows that: none of the most complete photographs capture reality. Science is not "realistic" - not the way a non-scientist conceives of such things anyway. We build theories out of air so that we can better understand the things those objects mathematically represent. And understanding differs by the human enterprise. For poetry, it may be to entertain/break hearts, advocate, or achieve some culturally defined remarkable feat. For engineering, it may be to make a real bridge that can carry traffic to and fro. For economics, it is to solve an engineering problem too - to allocate society's total resources efficiently. The models are useful towards that end.

But the second reason we start there is because we always start with the simplest case. We learn a lot is useful things from this simple case. I noted the giffen paradox for example - which I believe is incredibly ballsy as far as scientific predictions goes. And that comes of a simple consumer optimization framework. Theres tons of stuff like that: theories that come out of basic principles that make testable predictions and which in carefully done experimental settings is vindicated.

The outsider though does not know this basic stuff. Furthermore, they don't know the advanced stuff. So what do they often know? Frankly, a lot of why non-economists know is just the garbage that gets peddled by political ideologies, like colleagues, family members, pundits or whatever. It's bias to the core. And the bias runs each way.

Most non economists want economics to be an oracle for their private desires about society and the proper organization. But truth is, economics is not ever going to accommodate that. It is not "free market ideology" nor is it an endorsement of every govt program. Markets do a lot when consitions are met and fail in predictable ways when those aren't met, and knowing that helps us improve our lives because we need to achieve improvements in our life at as low opportunity cost as we can, else we throw away welfare somewhere else.

Anyway. Point is, if you haven't studied it beyond nyt best sellers, ones understanding could be weak or wrong . That is not haughty dismissal or condescension. But it's true. My bro-in-law is biochemist. He has a PhD in chemistry and studies proteins in plants I think. He knows more. How unbelievably silly is it to imagine me going over to some blog and badmouthing biochemistry. It's one thing to say "why do we need to know the foundations of economics" but it's another thing to take that ignorance and think it constitutes an argument.
posted by scunning at 7:04 AM on September 1, 2011 [2 favorites]

Jwhite- then by that definition Econ is a science. Goodness how can you even write something implying otherwise? I can't even figure out where to start. You've not studies economics, and you know everything about it and it's failings. That's called telepathy and that is pseudoscience. Economics has been empirical from the beginning. Its been generating testable predictions from the beginning.

Do this. Derive the slutsky equation. Show the conditions necessary for a positively sloped demand function. Google "Robert Jensen American economic review giffen". Read it. Then email me and I'll give you another one to do.

Whatever Econ is, it is not a pseudoscience. It may be entirely primitive compared to what humans will know and do in a hundred years but it is at least a science in the positivistic sense you are noting.
posted by scunning at 7:13 AM on September 1, 2011 [1 favorite]

Hi Scunning. On the one hand I agree that disciplines whose subject matter people are embedded in have a harder time persuading people to take their systematic work seriously. Like climate science - "ooh it's snowing so climate change theory must be wrong" (or psychology, sociology, politics, religion, etc). Everyone has an opinion on these and thinks they are well enough informed merely by ordinary experience and common sense.

On the other hand I'm not going to accept that specialised epistemic communities should have unquestioned authority just because contributing to them requires lengthy apprenticeships and mastering lots of specific techniques. i.e. just because they are specialist. Not to mention that there are lots of problems with standard concepts like welfare that it should be possible as an outsider to raise.

Also, it's not accurate to represent particular schools of thought in economics as the only game in town. Different schools ask different types of questions about economic phenomena and are constrained by those methodologies in the kind of answers they can get. Conventional macro-economics let us down badly for example because its models didn't incorporate banks or other financial institutions - it turned out that it was asking the wrong kind of questions about the economy. And it turned out that Keynesian economics that might have been expected to fill the gap was in terrible disarray.

Pluralist economics would be more properly scientific. Where we try out all sorts of different approaches and see how helpful the insights generated are for grappling with the problems we actually have. What the public is interested in is what these specialist economic communities can actually do for us (like engineers are supposed to build useful things that work). The economist magazine for example does this quite well and offers its analysis in a more or less intelligible form to its readers to consider for themselves rather than as condescending conclusions from on high.
posted by Philosopher's Beard at 8:26 AM on September 1, 2011

PB: macro models is not my cup of tea. But I suspect the problem is not merely that banks aren't modeling well. Macro phenomena are very hard to test period. Testing the predictions properly requires conditions that are least likely to be met for a system that encompasses the enite planet when economies are open. I have a lot of sympathy for that work; micro seems able to get closer if only bc the phenomena studied are literally micro units: households, firms, specific markets, etc. The feedback effects between a treatmer group and a control group are at least conceptually possible to limit.I'm not sure that even is possible though with macro conceptually let alone in reality. But I'm not a macroeconomist, so I hesitate to offe suggestions.

Epistemological authority. Absolutely not. I don't think that at all. The point I am making is general: don't blast something you have not studied. If the target is neoclassical Econ, and ones exposure is limited or obviously uninformed, then it's basic common sense you likely won't know anything. A lot of people seemto just like having a judgemental opinion about things or people as opposed to having a curiosity about it. With Econ, it's like watching a bunch of peoe attacking a piñata of someone and thinking they are actually fighting the real person. Is it too much to ask someone to watch the movie before writing the review of how it sucked? Would it be so bad if someone said "hell if I know what neoclassical econ is as I have only read criticisms of it by peoplee I respect." the world could use more people saying "I don't know" when they actually don't.

But by all means, anyone can do anything, talk about anything. Doesn't mean all of it valuable or even relevant. Critiques of neoclassical economics are 9 out of 10 times said by someone who hasn't learned anything about it, at least online. When they say something like it's a pseudoscience that doesn't generate testable predictions - come on. Empereror has no clothes.
posted by scunning at 8:55 AM on September 1, 2011

Btw, to say Keynesian theories of the business cycle failed us is IMO pure speculation. Krugman was constantly, using Okuns law, saying the stimulus needed to be ginormous. It was what half to a third that. Second, who knows what unemployment would be in the counterfactual without the meager stimulation we got. Maybe it would be the same,nor maybe it'd be even higher. (or lower).

Withou knowing that counterfactual we haven't falsified the model. Part of the heat in macro comes from that very challenge: not that the models aren't generating predictions, but the conditions necessary for prediction may be either not met or highly dependent on particular debateable assumptions.

Economists will be studying this recessions for decades just like we are studying the great depression still today. But probably nowhere is there more pluralism than macro theory. Micro, there is almost none.
posted by scunning at 9:04 AM on September 1, 2011

If the target is neoclassical Econ, and ones exposure is limited or obviously uninformed, then it's basic common sense you likely won't know anything. A lot of people seemto just like having a judgemental opinion about things or people as opposed to having a curiosity about it. With Econ, it's like watching a bunch of peoe attacking a piñata of someone and thinking they are actually fighting the real person. Is it too much to ask someone to watch the movie before writing the review of how it sucked? Would it be so bad if someone said "hell if I know what neoclassical econ is as I have only read criticisms of it by peoplee I respect." the world could use more people saying "I don't know" when they actually don't.

Well, the little I know about Economics comes from a very basic introduction during college the very little I've read online in the last few years and I have no problem admitting it. Also, when I dismiss Econ I presume I'm dismissing Neoclassical / "growth-dependent" / mainstream(?) economics. That includes Krugman, I suppose.

I guess my questions to the Econ defenders in this thread are these: what are your views on limits to growth, and what would it take to convince you that Neoclassical Econ is no longer adequate?
posted by Bangaioh at 9:18 AM on September 1, 2011

...college and the very little...
posted by Bangaioh at 9:19 AM on September 1, 2011

what are your views on limits to growth, and what would it take to convince you that Neoclassical Econ is no longer adequate?

But these two just don't have a whole lot to do with each other. Neoclassical economics is mostly a game-theoretic translation of older microeconomic concepts like indifference contours and budget frontiers. Generally, growth and its limits are going to be simply irrelevant to standard neoclassical economics, which focuses on how people or firms make decisions under the budget constraints as they then stand. From what I think is your perspective, you might instead say that neoclassical economics often assumes that there is no such thing as growth.

Really, this is like asking "What are your views on limits to growth, and what would it take to convince you that the Higgs boson exists?"
posted by ROU_Xenophobe at 10:11 AM on September 1, 2011 [1 favorite]

Saulgoodman. Are you quoting Hausman?

Yes. Oops. Here's a source link.
posted by saulgoodman at 10:25 AM on September 1, 2011

Neoclassical economics is mostly a game-theoretic translation of older microeconomic concepts like indifference contours and budget frontiers. Generally, growth and its limits are going to be simply irrelevant to standard neoclassical economics, which focuses on how people or firms make decisions under the budget constraints as they then stand. From what I think is your perspective, you might instead say that neoclassical economics often assumes that there is no such thing as growth.

Thanks for the reply, I must once again parade my ignorance and admit my lack of understanding of those microeconomic concepts, though I don't think they matter to the particular point I'm making.

So if I get what you're saying, for neoclassical economics it doesn't matter whether the economy is growing or shrinking, it concerns itself with the study of how people/firms deal with whatever constraints they encounter.
Then where does the expectation of infinite growth/progress comes from? I'm assuming Neoclassical is the mainstream macroeconomic theory public policy is based on (and that both Keynesianism and the Chicago school belong to the neoclassical superset, so that most major parties in most countries subscribe to that theory in one form or another).

If growth is irrelevant in theory, why is it one of the main political priorities in practice (if not THE main)? Are you arguing that the growth pursuit is purely political in nature, because it's obviously easier keeping a majority of people happy even with a much less than perfect allocation of resources in a growing economy (ie, rising tide lifting most boats) and that the neoclassical framework would still work with a stagnated/shrinking economy over the long-term (centuries)?
posted by Bangaioh at 11:13 AM on September 1, 2011 [1 favorite]

Then where does the expectation of infinite growth/progress comes from?

I'm not an economist, but I'd first question whether there is any such expectation, at least as a consensus. Most obviously, because it's just not a question that I think a common or garden variety economist would be terribly concerned with; it would be like economists having a consensus about the processes of terrain formation on Venus.

I'm assuming Neoclassical is the mainstream macroeconomic theory public policy is based on

Sometimes but not always. Neoclassical economics provides a foundation for things like pollution taxes, cap-and-trade plans, allocation of airspace frequency, and some other things.

(and that both Keynesianism and the Chicago school belong to the neoclassical superset

Sort of, but that sort of macroeconomics doesn't neatly fit as being neoclassical or not. To the extent that macro models are explicit aggregations of micro level models, basically all of them will be related to neoclassical econ... including ones with diametrically opposed policy prescriptions to try to bend the economy towards some desired outcome.

If growth is irrelevant in theory, why is it one of the main political priorities in practice

Because politicians are elected, and people like growth. When oodles of people stand up and say "WHAT DO WE WANT? LESS! WHEN DO WE WANT IT? NOW!", I'm sure governments will generally oblige them.

the neoclassical framework would still work with a stagnated/shrinking economy over the long-term (centuries)?

I can't think of any reasons why it wouldn't work in such a context. People would still need to decide between various bundles of goods available within their budget constraint. Firms would still need to make production decisions. I imagine that a variety of investment games might have different equilibria in a context where long run expected returns were negative, but I can't see any reason why it would be hard to run the model.
posted by ROU_Xenophobe at 11:34 AM on September 1, 2011 [2 favorites]

This discussion of growth relates to what I was saying about different economics schools being limited by the questions they are intended to ask. Efficient allocation of resources over competing wants (neoclassical econ) can't explain growth because that's not what it's designed for. All the things, like human capital formation, institutions, innovation, are exogenous to the models. That's also why it's not been much help for developing countries.

NB why growth? I think Adam Smith's answer is a pretty good one. If there is no growth, the economy is a zero-sum game - every person's gain must be a direct transfer from someone else - and people will compete for the political power that grants them the largest possible slice of that pie (rentier class). He thought that was what had happened in China. Though China was still richer than Europe, he believed the poor there lived in much greater poverty than in the UK because those without political power suffered most.
posted by Philosopher's Beard at 1:17 PM on September 1, 2011 [1 favorite]

If there is no growth, the economy is a zero-sum game - every person's gain must be a direct transfer from someone else

Even if there is a completely fixed stock of goods, it's still possible for people to make themselves and each other better off by swapping those goods around.
posted by ROU_Xenophobe at 2:12 PM on September 1, 2011

I'm glad your a smart person. But I think your idealised image of science - pinning down event regularities under universal rules - is too simplistic. It doesn't cope with any subject where the parameters are subject to high variability, from ecology to climate science. Nor does it cope with much of modern physics, like string theory, which is very theoretical (if not metaphysical). Anyway, let me try to convince you that economics, whether or not it is a "science", is capable of providing significant and systematic knowledge of how the world works.

Ha. When I said, "I'm a rather bright guy..." I was stealing a Chomsky line. He was asking why deconstruction theorists can't explain their work in ordinary language.

Your response about me having an idealized image of science is exactly what my high school teachers and college professors used to tell me--and why I eventually tuned them out and studied English and history instead. I don't mean to suggest that I'm capable of understanding economic theories beyond the introductory level, but rather that in order to want to engage on the lower-level stuff it would be nice to have some assurance that we're building on a solid foundation. I went to a Christian college for 4 years and kept putting the same kinds of questions to profs who wanted me to swallow Augustine and Aquinas. I always got answers that told me the profs had no idea where their academic authority came from.

So I don't mean to be an ass. I'm really just trying to figure this out. I thought about going to grad school for economics just to get a better idea of what's going on in your discipline--found out what math classes I'd need to take at the community college before signing up, emailed some profs, spent a few weeks staring at IS/LM models, and so on.

If my understanding of science is simplistic, what would improve it? I have the same skepticism of string theorists, climatologists, and so forth. I'd ask them the same question: how is what they do science?

Your two-part answer, as you say, started off with a deductive example and then had an empirical part. From your perspective, do you feel like you're doing more scientific work when you're working with empirical data as in your child labor example? And (to use an expression I hear a lot from John Searle) what fact about a discipline makes it a science, even when there are variables involved which are large enough to prevent accurate predictions?
posted by jwhite1979 at 2:52 PM on September 1, 2011

jwhite I think you're too focused on semantics. This post and various of the comments should have given you something of a picture of what economists do and how they think about problems. Trying to define what anything (science, philosophy, literature, religion, human beings) really really is may be helpful up to a point in clarifying things, but will not give you what you seem to want: some ultimate objective authority for our thinking about the world.
posted by Philosopher's Beard at 3:18 PM on September 1, 2011

Maybe it is just semantics, but words mean things. If there is a discipline that can predict events and another discipline that doesn't predict events, it seems reasonable to separate them. As I said, I went to a Christian college, and those theology profs pretty much thought they were scientists of theology. A reasonable person would, I think, step in and say "Hang on! I don't think so. Science means something specific." I think it's just as reasonable to approach any discipline with the same skepticism. A person can explain how phrenology to me and give detailed descriptions of why it works, but I'd still say "but is it science?" And sure, the phrenologist might say, "You're hung up on semantics." I'm not trying to equate economics with theology or phrenology. I'm just trying to point out that semantics sometimes matter.
posted by jwhite1979 at 4:49 PM on September 1, 2011

And (to use an expression I hear a lot from John Searle) what fact about a discipline makes it a science, even when there are variables involved which are large enough to prevent accurate predictions?

Microeconomics, at least, allows for falsifiable predictions. The big problem with macroeconomics is that it's like meteorology; you can model the economy, you can measure it, but you can't really set up a control group. At best you can track relative change following divergent conditions.

For example, suppose you have two countries which are similarly situated and which both have similar trade relations with the US. Looking over the historical data, you find some correlation coefficient between their key economic indicators that sits within some respectably narrow confidence interval. So then you manage to negotiate a free trade deal between the US and country A but not with Country B. Now you could make some limited predictions about how their economies will change, using the FTA as your control variable.

Or look at it another way: everyone agrees that mechanics - the interplay of objects and forces and coefficients of elasticity etc. etc. - is part of physics, and that physics is a scientific discipline. Everything that takes in place during a tennis match could be modeled in mechanical terms: there are tennis rackets with a certain measurable structure made of certain materials, and the tennis rackets are accelerated through the air in particular directions in order to transmit force to tennis balls...and so on. But that doesn't mean a physicist has any special insight into who's going to win a given match in the US open.
posted by anigbrowl at 5:20 PM on September 1, 2011 [4 favorites]

Great explanation.
posted by jwhite1979 at 3:25 AM on September 2, 2011

I largely agree with you anigbrowl (unbelievable, I know). It's macroeconomic theory that I mostly take issue with. At the microlevel, economics can be useful.

But all economics are ultimately founded on culturally-biased assumptions about how value is/should be calculated. Cultures that violate the traditional rules of economic theory--for example, cultures that value sacrifice to the group or to one's elders over other forms of economic value--will always exist, because economic theories and practices are not universal. Economic systems don't necessarily have to be driven by the same universal economic rules, IMO.

Martian society (were it found to exist, say, among the highly-evolved, super-intelligent bacteria living in Mars' highly oxidized soil) might not practice economics according to the same first principles we do. Perhaps in martian custom, acquiring wealth for its own sake is a criminal offense. The martians are a kind of communist bacteria. They take it as axiomatic that the accumulation of excess personal wealth is an undesirable outcome. So after a certain point, martians begin to labor more for the good of the group than for their own gain. Perhaps in martian custom, when goods are in short supply, the selling price is actually expected to drop, because such goods in a time of scarcity may be needed more acutely among the underprivileged, and perhaps there's an accompanying cultural expectation that those martians who don't really have an essential need for the goods will abstain from rushing to buy them, despite the low prices. Even ordinary supply and demand in pricing might not apply on Mars.

Economic systems are shaped and driven as much by human psychology, politics and culture as maths.
posted by saulgoodman at 9:20 AM on September 2, 2011 [1 favorite]

Given how this thread turned out, this piece by John Kay would have been more apt.

Anyway I think we can all agree, Carlyle was a bit of a bastard. One hopes that English departments will now come under the same degree of scrutiny as 'neo-liberal' economics.
posted by Philosopher's Beard at 2:45 PM on September 2, 2011 [1 favorite]

But all economics are ultimately founded on culturally-biased assumptions about how value is/should be calculated. Cultures that violate the traditional rules of economic theory--for example, cultures that value sacrifice to the group or to one's elders over other forms of economic value--will always exist, because economic theories and practices are not universal. Economic systems don't necessarily have to be driven by the same universal economic rules, IMO.

Well, that's why they talk about theories, saulgoodman! Keynesianism is one theory about how economies work, monetarism/Friedmanism is another, and so on. The techniques of analysis remain fairly constant, just as math does. A lot of people on Metafilter are mercantilists: protect wealth by protecting domestic trade, using tariffs to keep competitors out of our markets.

There's a joke that Truman once demanded someone find him a one-armed economist, because he was sick of hearing the phrase 'on the other hand....'. Economics is much more diverse than you realize. Look up "the Island of Stone Money". It's a very short paper by Milton Friedman, about an actual culture in the South Seas that used giant stone disks as cash. The point is not to sell you on monetary theory (which I'm not a big fan of), but to show you that economists are anything but indifferent to cultural variations. On the contrary, they are endlessly fascinated by them.

People on the left think that the IMF and similar institutions are some horrific capitalist conspiracy designed to enslave the entire planet. People on the right think the UN is some horrific communist conspiracy designed to enslave the entire planet. You have fallen into the same pit of ignorance. There are not 'traditional' rules of economic theory - there are economic theories that have held up for varying lengths of time across various scopes of application. I am abundantly familiar with different cultural approaches to value and the distribution thereof. For one thing, I am married into a Vietnamese Buddhist family, and on certain days of the year that requires me to join in with purchasing and burning paper replicas of money, cars, clothes and other stuff. We go shopping and have involved debates over what their-but-now-also-my departed relatives would like if they were around to get the real thing, we spend real money after we've made our decisions, and then we take the stuff home or go to the cemetery and set fire to it. Do I believe that my grandparents-in-law are zipping around in an ectoplasmic red Ferrari? Hell no. Does this activity serve a distinct and meaningful economic purpose? Hell yes.
posted by anigbrowl at 4:16 PM on September 2, 2011 [1 favorite]

jwhite1979 - I may be too late to be a contributor to this conversation, but I had classes and stuff around here that kept me from posting. I just wanted to posit a general framework that occurred to me yesterday that I thought could be useful for thinking about economics as it is practiced today and highlight some subtle issues with it that may not always be apparent to a non-economist.

Economics has two flavors: the "positive" and the "normative". Normative economics is what we typically think of as ethical propositions regarding the best organization of society. I think oftentimes, non-economists will interact with economics as a subject largely because they themselves are interested in the very same question - what is the good society? Equality, discrimination, poverty, and so on are all the kinds of questions that someone will encounter everywhere and widely well before they ever talk to an economist. Economics has always been about those questions, too. Why are some people rich and some people poor - this is a scientific question, but it's also an ethical inquiry because oftentimes the question is asked so that a particular policy solution can be created.

My feeling is that sometimes people absolutely cannot stand economics, and attack it on so many levels, because they are interested in similar questions regarding the "good society", they encounter a single economist or a set of economists or a non-economsit quoting a bunch of economics, and they encounter it in such a way that it seems absolutely shallow, rudimentary, idiotic and wrong. That is not to say that "normative economics" is shallow, rudimentary, idiotic and wrong. My point is just that I think the points of entry into economics typically are happening via the normative writings, and historically there was a lot more of the normative stuff that was captured by special interest groups like politicians who basically cherry picked what they liked to serve the purpose of themselves and their constituents. Largely, the normative theory is focused on the broad question of how can society take its scarce resources and allocate them in such a way that we as a human race extract the most net benefits from them. From this, we learn about markets and decentralized processes, but we also learn the necessary conditions for markets to function well from the ethical point of view. We need clearly defined property rights, market competition, lots of information, just to name a few. Things which oftentimes in the real world actually are not met at all, meaning the markets may very well "fail". But the point in many ways of the model is to help us understand why they are failing, and what policies might be the most relevant.

Anyway, that's just a framework to have in mind - oftentimes the rub between the non-economist and the economics field is occurring not because of scientific dispute but because of a difference in values. The value of efficiency is not in my experience oftentimes what non-economists first thing of as part of the definition of the "good society". Typically the focus is on more abstract ideas - either liberty or equity measured in some way. One of the things that we usually encounter therefore is that society must make tradeoffs - not always, but a lot of the time - between the equity or fairness principles we value and the efficiency use of our scarce resources. That may be entirely warranted too, but I'm just pointing it out that this is one way that people can talk past each other - with both talking in terms of values, but holding different values.

But as I said at the beginning of this post, there's another flavor to economics called the "positive", which has too much baggage so let me just rename here as "scientific" or "theoretical" economics. Those may not be any clearer than "positive", because they would imply normative economics is not theoretical (it absolutely is - read Sen's work, on even Samuelson and Arrow's work on social choice early on). Or that it's not scientific. It definitely is. But the "positive/scientific/theoretical" framework is nevertheless distinct from the normative. It may not have always had such a clear, demarcation as it does today, though. If you go back in time and read the early modern and pre-modern economists, they are simultaneously sometimes talking about the ethics and the science of markets without distinction. The early writings on the "just price", or the "fair price", for instance could be an example of this. The scholastics are asking both where the price comes from, but also what is the "correct" price? Where "correct" is sometimes analyzed only in terms of an ethical framework.

The difference between these two ways of thinking may not be clear to me, but I typically see one as more testable than the other. Normative economics may not make clear testable predictions since it's historically been more of a purely deductive framework. We define the utility functions in terms of certain mathematical axioms, and try to understand whether it's possible to generate an aggregate function for instance. This is some work by Samuelson in the 40s and 50s. Or we think about the voting systems and whether there are voting methods that could lead to better allocations - which is a large part of public choice, and Arrow's impossibility theorem. But positive economics is going to be more focused on explanation, deduction, and prediction, and specifically prediction of behavior.

Utility is ultimately unobserved. It'll never be observed either. It's not something that measures on an fMRI or something like that. Happiness can be observed of course, even if only in a particular survey, but happiness is not utility. Utility is just a rank ordering of bundles of goods and services in terms of the individuals underlying preferences. Therefore moving higher up a preference ordering may or may not correspond to higher levels of happiness. They are simply not the same thing. Utility is not an emotion or a psychological state, whereas happiness might be. That said, normative economics may not always make as clean the predictions.

But positive economics is different in that regards. We derive the demand function from the maximization of utility, for instance. The demand function shows us that holding income and other goods constant, higher relative prices of a good ordinarily causes a non-negative change in quantity demanded of that good. It's ordinarily negative, but as I noted earlier, the existence of the Giffen good is a theoretical possibility, and evidence for it exists. But usually, we think it's downward sloping.

Well what's going on here? 10,000 foot view, what can we say about economists interested in the best allocation of resources and economists interested in predicting behavior? I think maybe the running theme is two fold:

1. Throughout economics, there has been an interest in analyzing society in terms of whether we can improve humans lives. This is normative economics, and you see it in every generation from the very beginning. It's one of the pillars of the science.

2. Throughout economics, there has been an interest in "causality". Specifically, explaining behavioral processes in such a way that scientific predictions can be made. Note Adam Smith's Wealth of Nations book has in the subtitle a reference to "causality" even. Smith was Hume's good friend, and Hume is the father of the puzzles over causation.

This is how I see it anyway. Most people simply do not know as much about the "positive theory". Not always, but sometimes. The big, important questions are thought to be in the normative arena - the ethical issues. But the modern framework for economics treats each as synergistic. They depend on one another. We cannot hope to improve people's lives through policy if we do not know theoretically what effect outside influences (say, fiscal stimulus) will have. Causality and ethics are like the Siamese twins of neoclassical economics. They are constantly in conversation with each other.

But that is not always the case outside of the conversations economists are having with themselves. This stuff trickles down to the guy on the street in a way that is uneven or sometimes even wrong. I think a lot of confusion is created naturally as a result over just what economics is and what it isn't. I find the "causality vs. ethics" framework personally helpful to sometimes use as a way of getting a feel for the overall landscape or the arguments.
posted by scunning at 8:16 AM on September 3, 2011 [1 favorite]

scunning: Thanks for taking the time to explain the difference between positive and normative economics. I didn't know positive economics existed as such.

For the last few years there has been a lot of talk in the news about monetary policy, right? I have read the term "liquidity trap" a few dozen times on Krugman's blog alone. From what I gather, the prime rate is at 3.25% right now and has been for a while, but low interest rates aren't enough to spur investment because the nominal rate is nearly zero. Is that right? So we do something called "quantitative easing," which is essentially buying up assets to put money into the system. Am I on the right track? Now the debate I'm always hearing about, at least as I understand it, is whether or not this kind of stimulus will cause inflation while an an economy is in a liquidity trap. I hear elaborate explanations why it will not, and I hear elaborate explanations why it will. Predictably, a person's political affiliation and the demographic of his or her readers tells you whether they believe inflation is or is not likely.

My guess is that positive economics is the branch more likely to deal with this question, since it is (or at least seems to me to be) concerned with causes and effects. If it is an objective, empirical science based on falsifiable models and all that science stuff, why is a person's subjective political beliefs tied so closely to their belief about the likelihood of grand-scale inflation?

Again, I'm really trying to have open ears. I appreciate all the previous explanations, and I hope that my skepticism at least seems reasonable. For the record, the economics I follow come mostly from Krugman and Economists View, and then whatever I find on the front pages of the Times or WSJ. Are these just shitty sources?
posted by jwhite1979 at 10:14 AM on September 4, 2011

People on the left think that the IMF and similar institutions are some horrific capitalist conspiracy designed to enslave the entire planet.

No, in my experience, there's more of that particular strain of thinking on the right wing fringe (one of those weird convergences of the extremes).

For my part, I'm not excluding left wing economic theory from this criticism. Economic ideas are way too easily foisted on the credulous as a way of lending scientific-sounding credibility, objectivity and precision to what are ultimately not scientific issues but social, cultural and political ones.
posted by saulgoodman at 7:31 AM on September 6, 2011