Home > Uncategorized > The non-existence of economic laws

The non-existence of economic laws

from Lars Syll

In mainstream economics there’s — still — a lot of talk about ‘economic laws.’ The crux of these laws — and regularities — that allegedly do exist in economics, is that they only hold ceteris paribus. That fundamentally means that these laws/regularites only hold when the right conditions are at hand for giving rise to them. Unfortunately, from an empirical point of view, those conditions are only at hand in artificially closed nomological models purposely designed to give rise to the kind of regular associations that economists want to explain. But, really, since these laws/regularities do not exist outside these ‘socio-economic machines,’ what’s the point in constructing thought experimental models showing these non-existent laws/regularities? When the almost endless list of narrow and specific assumptions necessary to allow the ‘rigorous’ deductions are known to be at odds with reality, what good do these models do?

Deducing laws in theoretical models is of no avail if you cannot show that the models — and the assumptions they build on — are realistic representations of what goes on in real-life.

Conclusion? Instead of restricting our methodological endeavours at building ever more rigorous and precise deducible models, we ought to spend much more time improving our methods for choosing models!

Formalistic deductive “Glasperlenspiel” can be very impressive and seductive. But in the realm of science it ought to be considered of little or no value to simply make claims about the model and lose sight of reality.

There is a difference between having evidence for some hypothesis and having evidence for the hypothesis reerrorineconomicslevant for a given purpose. The difference is important because scientific methods tend to be good at addressing hypotheses of a certain kind and not others: scientific methods come with particular applications built into them … The advantage of mathematical modelling is that its method of deriving a result is that of mathemtical prof: the conclusion is guaranteed to hold given the assumptions. However, the evidence generated in this way is valid only in abstract model worlds while we would like to evaluate hypotheses about what happens in economies in the real world … The upshot is that valid evidence does not seem to be enough. What we
also need is to evaluate the relevance of the evidence in the context of a given purpose.

  1. March 26, 2016 at 3:11 am

    Interesting piece. But you have the sequence reversed. Law, together with accounting metrology and marketing management, are well situated for use as mediators which bind economics to economy while constituting each as an independent entity, These mediators provide a powerful tool for framing, or more precisely for enacting, calculative agencies. This coupling device between theoretical work and economic practices organizes
    real experiments. And these in turn change how economics and economy are coupled. But the coupling itself is inevitable. After all we’re not looking for truth, but rather for relevance. However, I do agree with your frustration over the economics side of the coupling. It is not looking for relevance. Only for what keeps benefactors happy and money coming in.

  2. March 26, 2016 at 3:59 am

    Economists seek economic laws whereas scientists seek descriptions of reality based on patterns found within reality. Laws in economics are deductions from hypotheses that bear no relation to human behavior. They are formal, ontological laws following from the logic of assumptions whose sole purpose is to remove reality as a factor affecting consumption or production … both of which use resources to obtain defined benefits.

    No economics that fails to define what those benefits are, or how the price system (together with incomes distribution) distorts consumption and production paths is worthy of the name economics.

    • March 26, 2016 at 4:32 am

      Not quite. Economists use laws to link economics and economy. Accounting and management metrology similarly link economics and economy. Scientists observe and based on multiple and different observations reach conclusions about the objects of their observations. They use shorthands like the laws of thermodynamics or the laws of evolution to help organize their observations and conclusions. What they observe and how they observe changes with time and events such as grants, laboratories available, reviews by other scientists, social movements, fear, etc. “Reality” is not a part of this except as a social creation, primarily for polemical purposes. Just as we are doing here – to argue about. The arguments settle nothing but they do use a lot of time that could be better spent and resources that could be better utilized.

      • March 26, 2016 at 3:51 pm

        Most of what passes itself off as economics is based upon the built-in mechanics of the price system ‘as if’ only the mechanics of the price system mattered.

        Law, politics, human needs, and desires for different forms of benefit within society are the framework within which the price system operates. These are exogenous to markets per se, but markets are structured by them (and that includes ‘illegal’ markets.)

        But, when I try to say that values-in-exchange are not the only ‘values’ economics should be concerned with; or that, for certain, values-in-use called ‘benefits’ need re-introduction to show how these operate; or, when I add that, at a minimum, economics should concern itself with the behavior of life forms –us–trying to provide for ourselves individually and together, I am met with overwhelming silence. And, when I add that the data is out there to do this :: to distinguish between the operations of the price system relative to values-in-use, essential and not; or, the difference between objective and subjective well-being and how the latter hinges upon the former :: no one seems interested.

        Economists seem wed to logically-ordered ‘complete’ systems based solely on the mechanics of the price system and algorithms said to completely define the behavior of ‘consumers’ and ‘firms’.

        Yet, if the order is mostly exogenously determined, then one must abandon the simple mechanics of prices and money to get behind how these affect actual economic activities and what is rational within such activities given what is exogenous but largely determinative.

        It’s rather simple and straightforward to show that people have different tastes and requirements for consumption and how this affects ‘consumption/use’ individually and in aggregate. But, when I’ve done so, I have only been met with silence. {Among other things, the price system feeds upon the dreaded algebra of necessity, yet no one seems concerned with how THAT works.}

        Best to you.

      • March 26, 2016 at 6:48 pm

        The same complaints you raise are also heard from chemists about physicists, from biologists about chemists, from sociologists about psychologists, etc. They all claim that the scientists on the other side are too focused, and thus miss a lot and often reach conclusions that are too narrow and not relevant for the effects that are actually experienced. Sociologists, psychologists, anthropologists, geographers, etc. direct this same criticism at economists. Interesting point is that economists seldom address this complaint at these other scientists. The reason this is so, I think is that economists do genuinely believe that economics as a science is all-encompassing, able to explain all human actions. Even funnier thing about economics is that its practitioners often do not agree on what the elements of this all-encompassing science are. From these two basic assumptions derive all the sins of economists you mention. Take the example of the debate among economists pro and con about the “privatization” of social security. The pro economists begin from the unquestioned assumption that the world is always better off if people are allowed always to “invest their own money in their own ways, and live with the consequences of such investments.” The con economists begin from the unquestioned assumption that a privatized social security leaves the users of social security benefits worse off than the current government-run arrangements. The pros and cons may use the same economic models, and even the same mathematics. But these basic beginning assumptions already predetermine what the use of these must show. Not using such assumptions, of one sort or another is impossible for humans. But scientists depend on other scientists, often from different parts of science to lay bare such assumptions and keep the process working. Even review by non-scientists can often help in this same way. But then the first assumption takes over – economics is all encompassing, explaining all human actions. The work of economists is seldom reviewed by non-economists or the general public. And this is what is desperately needed if economics is to function as a science rather than simply a conduit for the beginning assumptions of economists.

      • LarryMotuz
        March 26, 2016 at 8:28 pm

        Thank you.

        But when biologists lambaste chemists, or sociologists do so with psychologists, and vice versa, they are basically saying about the others that they are not taken into account the impacts and effects of, say, culture and society and backgrounds in individual identity formation. This said, both sociology and psychology have added to our knowledge in those areas they have focused upon.

        But I cannot say this about ‘economics’ in the post-Classical age {1840s+}. I am saying that what economists have ‘added’ are basically a set of ideological fairy tales about how economies operate, how people behave, and how firms make their decisions. And they have done this not by abstracting patterns out of observable economic activities, but by abstracting the science itself from any observable economic activity pursued by human beings individually or together. In a sense, it would not be wrong to say that economics ‘transcends’ its subject matter rather than observes or describes it.

      • March 27, 2016 at 4:00 am

        To begin from your example. Psychologists study peoples’ psychology. Sociologists study social interaction and society. Where do these notions come from? Humans are always involved in relationships, in interactions. With both humans and nonhumans. How do psychologists and sociologists choose which parts of these ongoing and ubiquitous experiences they want to call their “scientific object of study?” They ask questions. Why and how peoples’ involvements with one another and physical objects are created and destroyed, and made durable? Things like love, hate, physical resources, society, social movements, fear, etc. And they decide to study these hopefully because they want to understand how the work is done and re-done through which they come to exist. Carrying this over to economists, they should study how economic actions and interactions are made to exist, are created and how they are re-created. Other scientists must observe and critique their work, and give the economists feedback, from which they can become better economists. No economist satisfies these obligations in every instance and in full. And no critic is all vigilant. But scientist and scientist critic together make the sciences effective. Unfortunately, if your description is accurate both the economists and the other scientists who should be reviewing their work are failing. And economists can’t “transcend” the objects they study. The objects they study make the world. To transcend that is impossible and at the same time remain a scientist.

      • March 27, 2016 at 4:44 am

        “And economists can’t “transcend” the objects they study. The objects they study make the world. To transcend that is impossible and at the same time remain a scientist.”

        That was my point, Ken. Mainstream economics, whether micro or macro, ‘transcends’ the realities it purports to describe. And, yes, that is impossible and at the same time, claim to be scientific.

        I worked for many years as an economist whose learnin’ so to speak was based on Alfred Marshall with bare mention of Hicks. What I learned was that what Marshall designed :: based on utility as a benefit or a satisfaction but always treated as ‘satisfaction/pleasure’ was little more than a classroom exercise based on the mathematical proposition that the slope of a ‘total utility function’ could be set equal to the price people :: always an individual :: would be just willing to pay at that point the slope was measured. This really had no application in the real world, especially the failure to distinguish between benefits from consumption and possible satisfaction (or not) with having any kind of benefit at all.

        After ten years, I went for an M.A, at one of the best schools. There I encountered Hicks. At first, I was dazzled by the mathematical legerdemain. I could do this kind of economics with the best of them (though I hang onto mathematics by the skin of my teeth). Yet, ultimately, I felt that nothing I’d learned applied to any of the work I’d done. And, on returning to professional practice, I found very little substantive use for any of the concepts (and laws derived from those concepts) in any area I studied. When I did crop research, for example, I measured benefits in terms of agricultural land use, the creation of new markets with ‘canola’, the effects on land through the rotation of crops (how marginal lands could now be used), the differences in older crop yields versus new ones…and, then and only then, could I actually address the overall economic impacts and effects of the development of new varieties of crops. Most importantly I showed that all marginal lands as measured by Canada’s Land Inventory had already become brought into production in large part because the newer varieties were being planted on lands once regarded as unsuitable for agriculture do to saltiness or drought [Salt resistance and drought resistance transformed non-arable lands into arable ones.

        My approach certainly differed from standard economic studies by largely casting benefits into terms which could be converted into money values but which stood as inherently valuable benefits in themselves.

        That is still my approach. I look at what happens/happened in terms of the scope of non-economic benefits before claiming economic ones ipso facto out of theoretic approaches.

        For the theory of the consumer, I have concluded that benefits in use can be objectively categorized, and that only one of these :: values-in-exhange :: is actually considered in economics. And, to my knowledge, I am the only commentator who shows crucially how the interaction of the price system can alter the range and diversity of consumption and productive activities by reducing the range for those with lower incomes. I also give consumers different tastes but show that the operation of the price system means that for most people most of the time means that the diversity in what they can afford to consume is not consistent with maximizing preferences in either the Marshallian or Hicksian frameworks.

        So, I have no use for what I call blackboard transcendental economics, and neither should anyone trying to do science. I move away from representative consumers by giving groups of consumers taster functions subject to existential essentials in consumption. Providing for oneself means providing for needs and wants iirrespective of preferences. And, in aggregate, one can construct objective utility functions based upon existential essentials arising from biology, modern technologies, and the like.

      • March 27, 2016 at 9:40 am

        First, the word reality or realities really bothers me. It’s as if sciences are just a simple matter of identifying what is “real” and describing it. As William James pointed out more than a hundred years ago “reality” is just the parts of the ongoing experiences of living that we pay attention to. It is in this sense that “reality is constructed.” Experience is ongoing and never ending. People create “seams” in that stream of experience and give names to the outlined portions like personality, psyche, society, the sun, gravity, and of course science. This is also the case with the work of scientists. They too create seams to study the seams that already exist. A simple example — the sun was created and understood by humans long before science came along.

        As to your other points I interpret what you’re saying that you want to be and prefer to be directly involved with creating the economy. That’s okay. But sometimes being directly involved and also studying what is created as a scientist is a difficult balancing act. Sometimes such folks find themselves wanting to “fix” or guide the process of economy creation to make certain it comes off correctly. And that is decidedly dangerous for the both the scientist and the process s/he is seeking to “guide.”

      • March 28, 2016 at 11:30 am

        This has been a very interesting thread, but I disagree totally with Ken and William James here. Ken is bothered by using language transparently and seeing only its construction, not his and William James’s usage of Hume’s interpretation of it.

        Hume committed himself to the proposition that all we can know is our own experiences. {Critical] Realists commit themselves to the much more realistic and less bothersome proposition that there is a reality which exists and persisted quite independently of there being any humans around to experience it. This is a philosophical choice, not a scientific discovery.

        At the head of this sub-thread Ken says: “Economists use laws to link economics and economy. Accounting and management metrology similarly link economics and economy. Scientists observe and based on multiple and different observations reach conclusions about the objects of their observations. They use shorthands like the laws of thermodynamics or the laws of evolution to help organize their observations and conclusions”.

        So laws and metrics are linguistic forms linking economic language to economic reality?

        If economists are to become scientists they need to use shorthands like the laws of referentially typed logic, provided half a century ago in the grammar of the scientific language Algol68, but lost to NIMBY American commerce’s “simpler” computer programming language ‘C’, in which reference level typing is reduced to provision of pointer variables. (When I say that Algol68 was created as a scientific language, I am directly reporting what I was told by my mentor, the late John Morison, who made it work as a programming language).

      • March 28, 2016 at 7:47 pm

        The term “reality” as it’s most often applied bothers me because it leaves the impression, in fact often much more than impression that what’s happening around us is un-problematic. That seeing, hearing, and knowing it require no work. That is certainly not the case. And you don’t need to be an advanced PhDs philosopher to grasp that. Just talk to any child as s/he learns their way around the world. It’s hard work and involves lots of choices and dead ends. Scientists, including economists “learn” about the world in this same way. Now as you and others note economists can and do it seems choose often to focus on only certain ways of knowing the world, e.g., mathematics, axiomatic models, calculative humans. But as hard as they work at it these choices often can’t explain or even recognize many parts of their own experiences. Psychologists call this psychopathology.

        Yes, scientists often rely of what’s called in the social studies of science “black boxes” as short cuts to help organize observations. I am not familiar with Algol68, so I cannot say if it does or could function as one of these short cuts.

      • March 29, 2016 at 8:34 am

        “The term “reality” as it’s most often applied bothers me because it leaves the impression, in fact often much more than impression that what’s happening around us is un-problematic”.

        This is precisely the point at which reference level typing is necessary to remove error and ambiguity. If “reality” is seen as referring to what one sees, here and now (as it seems you and James do and as Hume argued is all one can be sure of), then how do you account for the existence and history and scale of the universe?

        The other point of view (time apart, one could think of this as a macro as against a micro view) is that what one sees is communicating at least a reference to a reality we don’t see, and the term “reality” is a reference to [the programming of] a WAY OF INTERPRETING what we see (c.f Kant’s argument against Hume on the meaning of causality): what we see depending on how our brain/subconscious mind interprets the informative signals it receives. Thus the term “reality” is both a type (‘C’) or mode of interpretation (Algol68) and a second-level reference to the “reference” which is whatever it is we do see.

        Perhaps because I didn’t spell it out clearly enough, you seem not to have grasped the conclusion of this argument: that language is itself a short-cut, used by our brains to index memories of our experiences. We can reorder our memories most simply by reordering their index. However, words signal different things to different people, so it behoves scientists, at least, not to use them transparently. Hence the explicitness of Algol68 definitions, which enable logical errors to be seen and corrected before they are occur in practice, and the wider significance for economics and social science generally of the INFORMATION SCIENCE they have so totally neglected.

        Would that I had your ease with words, Ken, but though we are obviously looking at the same things, we are looking at them significantly differently. Please persist in trying to understand that difference and its significance.

      • March 29, 2016 at 12:19 pm

        First, experience is much more than seeing. And certainly much more than packaging a model, any model. Second, experiences as they’re passing, as they’re part of living so to speak are difficult to grasp in full. I think impossible to grasp in full. They’re put together in one of perhaps millions of patterns after the fact, and then explanation(s) are attached to these patterns. Third, over time the patterns and explanations get rearranged or replaced. Fourth, dichotomies like macro/micro, rational/irrational, fact/value, etc. did not exist till the Europe of the 16th century. For a fascinating history of the creation of the fact/value and rational/irrational dichotomies check out Mary Poovey’s “A History of the Modern Fact: Problems of Knowledge in the Sciences of Wealth and Society.” To invent science required first that a knowledge for science to study was created — the modern fact. Theodore M. Porter explores the history of objectivity and quantification in his book “The Pursuit of Objectivity in Science and Public Life.” He tells the story of the invention of objectivity and quantification.

      • blocke
        March 29, 2016 at 3:23 pm

        What do people do in an intellectual community based on the rational pursuit of knowledge when those who control that community do not pursue knowledge rationally? That is the issue facing the real world economic review community in most posts on the blog. You suggest Ken that the phenomenon (clinging to irrationality) is a psychopathology particularly rife among social scientists. But those of us who live in universities know that it is normal for academics who invest so much time and effort into creating a knowledge paradigm cling to it when it has become irrational ideology. The problem is how do we go about managing change within the academic community to loosen the grasp of the irrational paradigm within the community power structure.
        Discussion of change management never occur on this blog. Yet, change management is an important subject in management studies that organizations face continuously. You have an education in management studies and experience in management, Ken. How do you think our discipline can end the tiresome discussion turmoil about discipline content by fostering change in the power structure?

      • March 30, 2016 at 4:50 am

        The kind of struggle you mention has happened or is happening in just about every part of the scientific community. For a hundred years Anthropologists who study economic actions waged a war between formalists and substantivists. Formalists accepted the model of humans as rational optimizers while substantivists emphasized institutions and ethnography and totally rejected economic theories. Psychologists have fought over behavior vs. mind for over 100 years. Sociologists either take society as a given and use it to explain human actions, or treat society as the thing that needs to be explained. Physicists are calling one another names over string theory. Geology is in a battle with earth science. And the list goes on. And the humanities studies show the same pattern – history, literary criticism, philosophy, languages, international relations, and musicology. Efforts to settle these disputes include creating over-arching theoretical frameworks, new separation points within the field of study, forcing change by denial of publications access or academic ratings, etc. Will one of these work in economics? Don’t know. You tell me.

      • blocke
        March 30, 2016 at 9:58 am

        Since I went through the battle of NEH among historians in the late 1960s and 1970s I am aware particularly of the controversy in history, I participated. My point is that there is constant complaint but in the blog about the prescriptive failure in economics and about how those who control the power structure ignore it, but a serious lack of curiosity about how to change it. Perhaps we could begin with a world wide survey about the state of the critique within academia, in the nonwestern as well as the Western world.

      • March 31, 2016 at 4:39 am

        That’s as good a place as any to start. But you need to follow that up with something that’s either prescriptive or attractive in terms of status and physical rewards – or some combination of these.

  3. blocke
    March 26, 2016 at 7:31 am

    H. Thomas Johnson and Robert Kaplan in Relevance Lost: The Rise and Fall of Management Accounting, 1987, note how management accounting failed to run production. At Toyota Johnson noted the company dropped them for human coordination processes.

    • March 26, 2016 at 7:52 am

      A linkage that failed. Happens all the time in science. It’s happened to me more times than I care to admit.

      • blocke
        March 26, 2016 at 3:42 pm

        That failure in economic sciences can be quite consequential. The lean production management movement, which has flourished since the Japanese challenge in manufacturing in the 1980s, and which is rarely cited on this blog, blames management accounting taught in US business schools to MBAs and followed in praxis, in part at least for the failure to manage our factories efficiently. Adherents of the lean management movement have little good to say about MBAs working in industry.

      • March 26, 2016 at 6:53 pm

        I have little good to say about MBAs in management, budgeting, human resources, government or just about any other area of business or government since the 1980s. I’ve worked with dozens of MBAs. Most have proven to be arrogant pricks who add little to the economy or to the well being of the world. Could we just shut down all the MBA programs?

      • blocke
        March 26, 2016 at 10:01 pm

        The irony is that just when the critic of MBAs gained strength in the 1980s and afterwards, MBA programs blossomed worldwide. In the conclusion to our book, Confronting Managerialism, 2011, Spender and I recommended, absent major reforms, that MBA programs be shut down. Countries with first class economies, e.g., Japan and Germany, have done well without them. But business school networks promote them tirelessly and successfully.

      • March 27, 2016 at 4:09 am

        Yes business school has become quite an industrial complex.

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