November 16, 2015

Heterodoxy as superior alternative

Comment on Lars Syll on ‘Deductivist modeling leading economics astray’

Blog-Reference and Blog-Reference Nov 18

Since the human brain works sequentially every analysis has a start and then proceeds logically from there. It seems pretty obvious that if the premises are false then the conclusions are false, too, or as the IT-crowd always had it: garbage in, garbage out. This is known since antiquity: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Resume of Aristotle’s Posterior Analytics)

Everyday thinking, of course, works differently: “The animistic fallacy is the informal fallacy of arguing that an event or situation necessarily arose because someone intentionally acted to cause it. While it could be that someone set out to effect a specific goal, the fallacy appears in an argument that states this must be the case. The name of the fallacy comes from the animistic belief that changes in the physical world are the work of conscious spirits.” (See Wikipedia)

So, animistic thinking explains the appearance of a thunderbolt with Zeus being angry while physics explains it as electromagnetic phenomenon. The latter thinking eventually leads to the lightning rod. Animism regularly leads to a milder or stronger form of paranoia, that is, in speculation about the behavior of unknown entities, which are seen as either benevolent or malevolent. Thus, everyday thinking or common sense runs essentially in the categories good/bad or like/dislike while scientific thinking runs in the categories true/false.

Economics is a strange mixture of analytical and animistic thinking. Orthodoxy holds that the working of the economy is explicable as the result of the interactions of an entity called homo oeconomicus and an entity called Invisible Hand. Both are benevolent and increase an entity called welfare.

These ideas are explicitly formulated as hard core premises: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to  equilibrium states. (Weintraub, 1985, p. 147)

Now, remember Aristotle, the crucial condition is that ‘premises are certain, true, and primary’. It has been also observed since antiquity that there is no such thing as certain, true, and primary premises about human behavior.

“Alexander Rosenberg lays great emphasis on the role of intentionality in the social sciences, for in his view this role explains the nomological failures of the social sciences and supports the view that the social sciences (in anything like their current form) can never succeed in formulating real laws of human behavior.” (Hausman, 1992, p. 326)

This, too, is known since antiquity: “For arguments about matters concerned with feelings and actions are less reliable than facts: and so when they clash with facts of perception they are despised, and discredit the truth as well.” (Aristotle, quoted in Georgescu-Roegen, 1966, p. 184)

So, what Jon Elster demands is a contradiction in terms: “To achieve explanatory success, a theory should, minimally, satisfy two criteria: it should have determinate implications for behavior, and the implied behavior should be what we actually observe.” (See intro)

Gossiping about human behavior is popular but definitively the wrong angle of analytical attack. The crucial methodological point is that economics cannot be based on behavioral assumptions. Neither constrained optimization nor animal spirits will do (Hudík, 2011).

The set of five hard core propositions has proven its worthlessness. Orthodoxy is a failed approach according to the formal and empirical criteria that define science. And, most important, the failure has been built into the premises. Keynes knew this very well: “For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises.” (Keynes, 1973, p. xxi)

Therefore, economics has to be redefined, and this amounts to an emancipation from the animistic thinking of the so-called social sciences.

Old definition, subjective-behavioral: “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”

No! It is not the task of the economist to dabble in psychology, sociology, political sciences, history, anthropology, law, ethics, or philosophy. The subject matter of economics is the economy.

New definition, objective-structural: “Economics is the science which studies how the monetary economy works.”

This requires a new set of hard core propositions to start with, which — and there is no way around it — have to be ‘certain, true, and primary’ (2014b; 2014a).*

Heterodoxy will either succeed in this task or it will be thrown out of science just like Orthodoxy.

Egmont Kakarot-Handtke


References
Georgescu-Roegen, N. (1966). Analytical Economics, chapter Choice, Expectations, and Measurability, pages 184–215. Cambridge, MA: Harvard University Press.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Kakarot-Handtke, E. (2014a). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL
Kakarot-Handtke, E. (2014b). Objective Principles of Economics. SSRN Working
Paper Series, 2418851: 1–19. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL

* For a start see cross-references Curriculum


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ICYMI (comment on Bruce Wilder of Nov 12 on Nov 19)

‘Uncertainty’ has become the shibboleth of Post-Keynesianism and the mantra is ‘We simply do not know.’ This raises the question: why do Post-Keynesians still waste their time with economics instead of making long and healthy walks in the lovely countryside?

That much is sure, the flight path of a down feather is uncertain. All that can be said after countless meticulous empirical observations is that it eventually falls to the ground. This is why physicists ignored the uncertainty of the down feather entirely and took another route to figure out the Law of Falling Bodies.

In any case, physicists have not made a habit out of telling the world what they do not know or what is unknowable. They are famous for telling the world what is known and what can be known.

So the answer to Post-Keynesian know-nothings is to get out of the way, or as G. B. Shaw put it ‘People who say it cannot be done should not interrupt those who are doing it.’


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ICYMI (comment on Silwyson of Nov 21 on Nov 21)

You say that the fallacy called ‘denying the antecedent’ is “a very common logical mistake particularly among economists.” This is true, indeed, and here is the best example I can think of.

First, a specimen of the fallacy from Wikipedia:
(i) If it is raining, then the grass is wet.
(ii) It is not raining.
(iii) Therefore, the grass is not wet.
Proposition (ii) denies the antecedent. While all premises are true, the conclusion is provable false.

Now, the application to a central tenet of economics:
(i) If a system explodes/implodes, then it has no equilibrium.
(ii) The market economy has not exploded/imploded in the last 200 years.
(iii) Therefore, the market economy is an equilibrium system.
Not much more than this logical crap is needed to convince the representative economist of the General Equilibrium approach.

Economics is traditionally awash with logical fallacies. So much so, that already J. S. Mill took it upon him to categorize and expose them at great length (see the chapter Fallacies in 2006).

The worst fallacy of economics, however, is the fallacy of composition, i.e. to generalize what is true for a single case (individual, firm) for the whole economy. This fallacy is the very foundation of Marshall’s approach and it is literally built into the neoclassical program of methodological individualism (Arrow, 1994, p. 1). For the fatal Keynesian fallacy see (2011).

In sum: While I agree with you that true propositions can follow from wrong premises — classical case: the sun goes up (true) because it circles around the earth as the center of the universe (false) — I am pretty sure that there is no logical fallacy in my post of Nov 18.

References
Arrow, K. J. (1994). Methodological Individualism and Social Knowledge. American Economic Review, Papers and Proceedings, 84(2): 1–9. URL
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, volume 8 of Collected Works of John Stuart Mill. Indianapolis, IN: Liberty Fund.