Models and evidence in economics
from Lars Syll
Analogue-economy models may picture Galilean thought experiments or they may describe credible worlds. In either case we have a problem in taking lessons from the model to the world. The problem is the venerable one of unrealistic assumptions, exacerbated in economics by the fact that the paucity of economic principles with serious empirical content makes it difficult to do without detailed structural assumptions. But the worry is not just that the assumptions are unrealistic; rather, they are unrealistic in just the wrong way.
One of the limitations with economics is the restricted possibility to perform experiments, forcing it to mainly rely on observational studies for knowledge of real-world economies.
But still — the idea of performing laboratory experiments holds a firm grip of our wish to discover (causal) relationships between economic ‘variables.’If we only could isolate and manipulate variables in controlled environments, we would probably find ourselves in a situation where we with greater ‘rigour’ and ‘precision’ could describe, predict, or explain economic happenings in terms of ‘structural’ causes, ‘parameter’ values of relevant variables, and economic ‘laws.’
Galileo Galilei’s experiments are often held as exemplary for how to perform experiments to learn something about the real world. Galileo’s heavy balls dropping from the tower of Pisa, confirmed that the distance an object falls is proportional to the square of time and that this law (empirical regularity) of falling bodies could be applicable outside a vacuum tube when e. g. air existence is negligible.
The big problem is to decide or find out exactly for which objects air resistance (and other potentially ‘confounding’ factors) is ‘negligible.’ In the case of heavy balls, air resistance is obviously negligible, but how about feathers or plastic bags?
One possibility is to take the all-encompassing-theory road and find out all about possible disturbing/confounding factors — not only air resistance — influencing the fall and build that into one great model delivering accurate predictions on what happens when the object that falls is not only a heavy ball but feathers and plastic bags. This usually amounts to ultimately state some kind of ceteris paribus interpretation of the ‘law.’
Another road to take would be to concentrate on the negligibility assumption and to specify the domain of applicability to be only heavy compact bodies. The price you have to pay for this is that (1) ‘negligibility’ may be hard to establish in open real-world systems, (2) the generalisation you can make from ‘sample’ to ‘population’ is heavily restricted, and (3) you actually have to use some ‘shoe leather’ and empirically try to find out how large is the ‘reach’ of the ‘law.’
In mainstream economics, one has usually settled for the ‘theoretical’ road (and in case you think the present ‘natural experiments’ hype has changed anything, remember that to mimic real experiments, exceedingly stringent special conditions have to obtain).
In the end, it all boils down to one question — are there any Galilean ‘heavy balls’ to be found in economics, so that we can indisputably establish the existence of economic laws operating in real-world economies?
As far as I can see there some heavy balls out there, but not even one single real economic law.
Economic factors/variables are more like feathers than heavy balls — non-negligible factors (like air resistance and chaotic turbulence) are hard to rule out as having no influence on the object studied.
Galilean experiments are hard to carry out in economics, and the theoretical ‘analogue’ models economists construct and in which they perform their ‘thought-experiments’ build on assumptions that are far away from the kind of idealized conditions under which Galileo performed his experiments. The ‘nomological machines’ that Galileo and other scientists have been able to construct have no real analogues in economics. The stability, autonomy, modularity, and interventional invariance, that we may find between entities in nature, simply are not there in real-world economies. That’s are real-world fact, and contrary to the beliefs of most mainstream economists, they won’t go away simply by applying deductive-axiomatic economic theory with tons of more or less unsubstantiated assumptions.
By this, I do not mean to say that we have to discard all (causal) theories/laws building on modularity, stability, invariance, etc. But we have to acknowledge the fact that outside the systems that possibly fulfil these requirements/assumptions, they are of little substantial value. Running paper and pen experiments on artificial ‘analogue’ model economies is a sure way of ‘establishing’ (causal) economic laws or solving intricate econometric problems of autonomy, identification, invariance and structural stability — in the model world. But they are pure substitutes for the real thing and they don’t have much bearing on what goes on in real-world open social systems. Setting up convenient circumstances for conducting Galilean experiments may tell us a lot about what happens under those kinds of circumstances. But — few, if any, real-world social systems are ‘convenient.’ So most of those systems, theories and models, are irrelevant for letting us know what we really want to know.
To solve, understand, or explain real-world problems you actually have to know something about them — logic, pure mathematics, data simulations or deductive axiomatics don’t take you very far. Most econometrics and economic theories/models are splendid logic machines. But — applying them to the real world is a totally hopeless undertaking! The assumptions one has to make in order to successfully apply these deductive-axiomatic theories/models/machines are devastatingly restrictive and mostly empirically untestable– and hence make their real-world scope ridiculously narrow. To fruitfully analyse real-world phenomena with models and theories you cannot build on patently and known to be ridiculously absurd assumptions. No matter how much you would like the world to entirely consist of heavy balls, the world is not like that. The world also has its fair share of feathers and plastic bags.
The problem articulated by Cartwright is that most of the ‘idealizations’ we find in mainstream economic models are not ‘core’ assumptions, but rather structural ‘auxiliary’ assumptions. Without those supplementary assumptions, the core assumptions deliver next to nothing of interest. So to come up with interesting conclusions you have to rely heavily on those other — ‘structural’ — assumptions.
Whenever model-based causal claims are made, experimentalists quickly find that these claims do not hold under disturbances that were not written into the model. Our own stock example is from auction design – models say that open auctions are supposed to foster better information exchange leading to more efficient allocation. Do they do that in general? Or at least under any real world conditions that we actually know about? Maybe. But we know that introducing the smallest unmodelled detail into the setup, for instance complementarities between different items for sale, unleashes a cascade of interactive effects. Careful mechanism designers do not trust models in the way they would trust genuine Galilean thought experiments. Nor should they.
In physics, we have theories and centuries of experience and experiments that show how gravity makes bodies move. In economics, we know there is nothing equivalent. So instead mainstream economists necessarily have to load their theories and models with sets of auxiliary structural assumptions to get any results at all int their models.
So why do mainstream economists keep on pursuing this modelling project?
Mainstream ‘as if’ models are based on the logic of idealization and a set of tight axiomatic and ‘structural’ assumptions from which consistent and precise inferences are made. The beauty of this procedure is, of course, that if the assumptions are true, the conclusions necessarily follow. But it is a poor guide for real-world systems. As Hans Albert has it on this ‘style of thought’:
A theory is scientifically relevant first of all because of its possible explanatory power, its performance, which is coupled with its informational content …
Clearly, it is possible to interpret the ‘presuppositions’ of a theoretical system … not as hypotheses, but simply as limitations to the area of application of the system in question. Since a relationship to reality is usually ensured by the language used in economic statements, in this case the impression is generated that a content-laden statement about reality is being made, although the system is fully immunized and thus without content. In my view that is often a source of self-deception in pure economic thought …
The way axioms and theorems are formulated in mainstream economics often leaves their specification without almost any restrictions whatsoever, safely making every imaginable evidence compatible with the all-embracing ‘theory’ — and theory without informational content never risks being empirically tested and found falsified. Used in mainstream ‘thought experimental’ activities, it may, of course, be very ‘handy’, but totally void of any empirical value.
Some economic methodologists have lately been arguing that economic models may well be considered ‘minimal models’ that portray ‘credible worlds’ without having to care about things like similarity, isomorphism, simplified ‘representationality’ or resemblance to the real world. These models are said to resemble ‘realistic novels’ that portray ‘possible worlds’. And sure: economists constructing and working with that kind of models learn things about what might happen in those ‘possible worlds’. But is that really the stuff real science is made of? I think not. As long as one doesn’t come up with credible export warrants to real-world target systems and show how those models — often building on idealizations with known to be false assumptions — enhance our understanding or explanations about the real world, well, then they are just nothing more than just novels. Showing that something is possible in a ‘possible world’ doesn’t give us a justified license to infer that it therefore also is possible in the real world. ‘The Great Gatsby’ is a wonderful novel, but if you truly want to learn about what is going on in the world of finance, I would recommend rather reading Minsky or Keynes and directly confront real-world finance.
Different models have different cognitive goals. Constructing models that aim for explanatory insights may not optimize the models for making (quantitative) predictions or deliver some kind of ‘understanding’ of what’s going on in the intended target system. All modelling in science have tradeoffs. There simply is no ‘best’ model. For one purpose in one context model A is ‘best’, for other purposes and contexts model B may be deemed ‘best’. Depending on the level of generality, abstraction, and depth, we come up with different models. But even so, I would argue that if we are looking for what I have called ‘adequate explanations’ (Syll, Ekonomisk teori och metod, Studentlitteratur, 2005) it is not enough to just come up with ‘minimal’ or ‘credible world’ models.
The assumptions and descriptions we use in our modelling have to be true — or at least ‘harmlessly’ false — and give a sufficiently detailed characterization of the mechanisms and forces at work. Models in mainstream economics do nothing of the kind.
Coming up with models that show how things may possibly be explained is not what we are looking for. It is not enough. We want to have models that build on assumptions that are not in conflict with known facts and that show how things actually are to be explained. Our aspirations have to be more far-reaching than just constructing coherent and ‘credible’ models about ‘possible worlds’. We want to understand and explain ‘difference-making’ in the real world and not just in some made-up fantasy world. No matter how many mechanisms or coherent relations you represent in your model, you still have to show that these mechanisms and relations are at work and exist in society if we are to do real science. Science has to be something more than just more or less realistic ‘story-telling’ or ‘explanatory fictionalism’. You have to provide decisive empirical evidence that what you can infer in your model also helps us to uncover what actually goes on in the real world. It is not enough to present your students with epistemically informative insights about logically possible but non-existent general equilibrium models. You also, and more importantly, have to have a world-linking argumentation and show how those models explain or teach us something about real-world economies. If you fail to support your models in that way, why should we care about them? And if you do not inform us about what are the real-world intended target systems of your modelling, how are we going to be able to value or test them? Without giving that kind of information it is impossible for us to check if the ‘possible world’ models you come up with actually hold also for the one world in which we live — the real world.
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Real-World Economics Review Blog 
If the economy were like a clock, one could mathematically model its parts, measure them and produce a testable prediction as to how much it would run fast (or slow). But what if the economy were like the internet – or before that an international telegraph system and before that international mail? How can knowing whether the mail will arrive on time tell us anything about what will happen as a result of instructions arriving in the mail? Can we even know whether they will be dust-binned, acted upon, or generate resistance? What we can know (and have policies in place to ensure) is whether or not people’s mail arrives on time.
Realistically, the economy is more obviously a communication system like the internet than it is a mechanical system like even an electronic clock. Nancy Cartwright was right: “the worry is not just that the economists’ assumptions are unrealistic; rather, they are unrealistic in just the wrong way”. Didn’t J M Keynes say something similar? “It is better to be roughly right than precisely wrong.”
Geology also cannot manipulate the object of its study. Why not look at a real science and learn how to do it?
You make a hypothesis, compare its *implications* with additional observations (possibly about something that happened two billion years ago). You accept/modify/reject the hypothesis accordingly.
No “prediction”, no manipulation, but we geoscientists learn a lot about the real Earth.
This endless philosophical agonising gets tedious.
Oh and a model spitfire looks a lot like a real spitfire. Most economic models are like a rocking horse next to a mob of wild horses.
Have a look and the green book in the right-hand column for more about how to do REAL economic science.
The problems are more historical than science related. When I sat watching tv in honolulu,11 sept 2001, watching planes crash into the world trade center, I DID NOT ASK MYSELF WHO DID THIS, I ASKED HOW WILL MY GOVERNMENT REACT, AND I WAS SHOCKED TO SEE HOW ANY WELL INFORMED HISTORIAN WOULD INVESTIGATE TIME AND PLACE OF EVENT BEFORE REACTING, TO FIND BUSH AND HIS COHORT DOING NOTHING OF THE SORT. The assumption under which my government acted were, any historian knew, illinformed and would get us into all kinds of trouble. The ignorance of the leadrship class is shocking in the West, and we are living with the results of this ignorance, Knowledge is only one pillar upon which action should be based, and with the modelization of social science, knowledge of the world ceased. Historians, if they could not be argued with, were simply ignored in the new prescriptive sciences. Historian know how filmsy and uncertain knowledge is, that is why they understand the desire of educators to make morality the basis of leadership training, as in the humanism of Humboldt. And the moral education that should be the essence of leadership training. The specificities of the state of moral order are historically determined through the study of time and place, not science.
I agree that, experiment is not the problem, assumption is not the problem, model is not the problem, empiricism is not the problem, deduction is not the problem, what matters is just and only that there is by far no a theory telling how a person thinks, how experiences become knowledge, how innovations happen, and thereafter how the thinking world looks like. Do you agree thoughts are the major objects of economics, instead of physical ones? If so, how could we reveal the economic mysteries without a thinking theory? The illness of economics could be big, allowing us criticizing for a half century; The illness of economics could be small, a theory as simple as a sentence or a formula could sweep all of them! Thanks! https://goingdigital2019.weaconferences.net/papers/how-could-the-cognitive-revolution-happen-to-economics-an-introduction-to-the-algorithm-framework-theory/
Try Direct and Reciprocal Monetary Gifting.
Thank you for your recommendation. Would you please give some introductory references on the theory? Thanks!
“I agree that, experiment is not the problem, assumption is not the problem, model is not the problem, empiricism is not the problem, deduction is not the problem, what matters is just and only that there is by far no theory telling how a person thinks, how experiences become knowledge, how innovations happen, and thereafter how the thinking world looks like.”
Yes, one will likely never get to the simplicity of a new paradigm via complexity without a new insight, new tool and awareness of awareness, that is CONSCIOUS awareness.
Developing an algorithm for wisdom/the mentally integrative process of discerning the truths in apparent opposites, and for wisdom’s pinnacle concept grace…which is just another word for a (naturally) heightened state of consciousness…might be a fruitful line of research not only in economics, but all of Man’s systems.
So far as references Steve Keen’s work on Minsky’s Financial Instability Hypothesis and David Graeber’s book “Debt: The First 5000 Years” are good accurately focused research. Recognizing that money is most basically accounting and that the entirety of the economy resides within the infrastructure of an accounting cycle of debits and credits is also enlightening. My new Monetary and Financial paradigm reflects the actions of the debit and credit nature of money and accounting in the words “direct and reciprocal”.
Thank you for your reply. As an ideal theory on Bounded Rationality, Algorithm Framework Theory could be the beginning of economics to clarify what money is, therefore would be greatly honored to embed your applied theories on accounting, money, debit, credit and so on. Yes, I agree that the bases of accounting have not been clarified yet, which was Algorithmically but briefly initiated in my new book, and is subject to largely detailing. Thanks!
BinLi, ignore Craig: he’s right in principle but confused about what money is.
I don’t agree with you when you say “empiricism is not the problem”, and “so far not a theory telling how a person thinks”. Empiricism goes by appearances, so it admits talk only of what already is, not of what could be nor the truth of what is said. The Jungian Myers-Briggs model of personality corresponds with G K Chesterton’s interpretation of the two sides of the brain (sound/vision specialised, i.e. serial and parallel logic), physiology by 1980 and what I have seen for myself in the development of computer hardware architecture and languages.
Dear Dave, thank you for your comments. Empiricism refers to Econometrics which Prof. Asad Zaman criticized recently in his serial WEA pedagogy posts. In my opinion, the critics are principally inappropriate, I have posted comments on almost each of the series, which are subject to your references. Especially, almost every knowledge or “truth” comes from empiricism – although not only from experiences, but also concurrently from innate thinking tools i.e. the Instructions. When some empirical results are compared with “truth”, we often find out they are so different, but forgetting where the “truth” came from and how the truth was originally generated. Therefore, this difference arises from Roundabout production of thoughts: “truth” is the result of previous thinking, a “finished product”; the empirical results are the results of recent or current products, some “semi-products”. When Asad insisted on integration of empiricism into realistic structures, in my eyes, he was just adopting the Neuman’s principle of “Stored Programs”. Thanks!
“he’s……confused about what money is.”
Really Dave….? C’mon.
Craig, so what are the “apparent opposites” in money? What it is and what people think it is from what they see of it in use?
BinLi, you are a brave man arguing in a language you are not familiar with. Empiricism isn’t econometrics. Here’s a helpful definition of it from a Google search:
“the theory that all knowledge is based on experience derived from the senses. Stimulated by the rise of experimental science, it developed in the 17th and 18th centuries, expounded in particular by John Locke, George Berkeley, and David Hume”.
So yes; the senses see what they are Instructed to see, and what they see modifies the Instructions; but there is an order in this: our senses can only see what they are already instructed on how to see, which when we are babies is nothing. So how do babies learn? There has to be what Descartes (c.1650) called “innate thinking”, the equivalent of which in computers is an on-off switch and a bootstrap program to enable one to load programs. The subsequent memories are not innate (built into the hardware) but learning, increasingly enabling one to not only sense to but to interpret, evaluate and do things. Truth in logic is a property not of of a statement but of a judgement, as in our instinctive (innate) “fight or flight” response to danger. A true wall in construction is upright, so not in danger of falling.
The apparent opposites regarding money and its nature have mostly already been established by heterodoxy for instance Loan-able funds vs loans create deposits and commodity vs fiat. Economists have mostly not cognited on the reality that money exists within an accounting cycle that is inextricably rooted in and guiding of the economy instead of it simply falling into and out of it.
However, currently, the most salient fact about money is that it is debt and is created as debt ONLY. That is its current paradigm, and that paradigm is monopolistic in nature. In other words it has no countervailing form or vehicle for its distribution. When Steve Keen shows that there is like a greater than 90% correlation between a dip in the rate of change in credit and historical recessions that tells us that money/credit is the operant factor in economic instability.
So let’s go with that fact….and not squirrel off into the weeds of other complexities, irrelevancies and/or false orthodoxies.
We must break up not only the dominating monopoly on the creation of money/credit that we have foolishly given to private banks…but even more importantly the monopoly on its paradigm of Debt ONLY. And the way to do that is to intelligently and strategically implement the new monetary and financial paradigm of Monetary Gifting so as to create more prosperity, stability and probably most importantly the ability to actually begin both a bottom up consumer product and fiscal means of dealing with the looming climate crisis….the latter of which goals Monetary Gifting is the only idea that un-inhibited-ly enables.
Historical paradigm changes have ALWAYS been characterized by conceptual opposition and operational and temporal reality inversions. Burn those truths into the stone walls and lets get going on fleshing out the policies and regulations of the new paradigm…instead of endlessly debating lesser reforms.
Lars Syll >> In the end, it all boils down to one question– are there any Galilean ‘heavy balls’ to be found in economics, so that we can indisputably establish the existence of economic laws operating in real-world economies?
Lars Syll is right in his conclusion. Yes, it boils down to one question. However, it is doubtful whether Lars Syll has ever tried to find “Galilean heavy balls.” If he really did, it is not difficult to find many examples.
Geoff Davies is right. Geology presents a good example for economics. Medicine gives another example. I have referred in my Reply on January 28, 2020 at 3:02 am to Michael Joffe’s paper:
Causal Inference in Statistics on January 27, 2020.
If we argue about causality in economics, we should read Michael Joffe’s article:
Causal theories, models and evidence in economics.
This is not the first time that I refer to this paper. Evidence-based did so before me. I came to know Joffe’s paper by Evidence-based’s comment. Lars Syll ignored all of them.
It is necessary to change our subjects for examination (agendas for scientific inquiry). If we want to find a predictive macroeconomic model, it is hopeless. Lars Syll is right in pointing it. Macroeconomic model is an “astrological” science. It prospers because people in governments and industries want it. But it is another thing whether it becomes a science in a modern concept of the term. We have to find agendas that can be a scientific question. We should differentiate astronomy and astrology in the discipline that is called economics.
I’ve enjoyed Geoff’s and Yoshinori’s comments here because they are so different to mine. I could be more sympathetic to their views were they to acknowledge the difference between fundamental and applied science: Kuhn’s revolutionary and normal science and Bhaskar’s DREI(c) and RRREI(c) schematic orderings of the types of activity in these. Indeed, it seems to me Lars condemns himself to going around in philosophical circles by not drawing attention to this distinction in Bhaskar’s Critical Realist “Dialectic”.
Geoff, your description of geology seems to be that of a fundamental science, but even that has practical implications (corresponding to the look-out’s job in PID navigation) like working out how to get advance warning of earthquakes and eruptions. I therefore don’t agree with Yoshinori that “If we want to find a predictive macro [economic] model, it is hopeless”. That depends on what you are looking for, as in “where to look” rather than “useful” facts. Applied geologists tend to be looking for oil and/or water in particular types of place.
Yoshinori (arguing here of course figuratively), the Gallilean “heavy ball” in economics is that its agents are human, hence biological: having to eat or they will die, so predictably “gravitating” towards supplies of food. Seeing that, capitalists have abused it, farming other people to supply their food. Some of us think that unacceptable. As animals we should be helping each other to farm vegetables. The “heavy ball” directing us to that is not gravitational force but logic (as in PID control), which has to be learned if it is to direct our energies.
Dave,
do you know the long history of science before Galileo? Of course, yes! You will answer, but think a moment about this. Aristotelian science occupied savants’ mind more than one thousand nine hundred years. Aristole was a kind of naturalist. He observed everything and left a detailed description of all he has observed (or what he has heard from some informants). But, he never imagined that a falling body obeys a simple rule that Galileo discovered. No one before Galileo ever tried to measure the velocity of a falling body.
We are so deeply trapped by our preconceptions. We see Galilean falling bodies everyday in our economy and yet we do not notice that there are many causal relations that can be discovered scientifically. Why? Simply because we do not try to find them. Majority of economists are consuming their time in activities which are astrology of modern times.
A typo: Aristole -> Aristotle.
Well yes, though curiously, I am in the middle of reading Gleick on Newton, which succinctly surveys the earlier science and its limitations due to inability to measure short times.
To critique you earlier comment, Lars says “In the end, it all boils down to one question — are there any Galilean ‘heavy balls’ to be found in economics, so that we can indisputably establish the existence of economic laws operating in real-world economies?” I’ve said, yes there are (our being human animals), but this is a quadratic with two solutions: a good one and a bad one (co-operative farming or being farmed).
As I’ve said, Geoff’s geology offers a good example to economics insofar as its applications are built on sound foundations.
To get down to foundations one has to remove (i.e. abstract) superstructure. In retroduction one argues back from the evidence (effects) to the cause, this often itself becoming evident at a “lower level” if (following Francis Bacon) one can “take things to bits to see how they work”.
From your comment below (2 Feb at 4.23 am) , I tentatively disagree that animals and humans have the same [behaviour causing] structure. As I see it, they can both be conditioned to react to stimulae, but without an adequate language they cannot internalise them to form concepts.
If we are trqpped by misconceptions, so are you; it s that a science of economics is not only possible but desireable. I see no reason to believe either. People in economics since Walras have believed it, but it has not happned as the pages of this blog testify. As an historian, I’ve been waiting for it to happen personally for fiftyyears, but what has happened is that an attenmpt to develop economic science failed,. and nobody wants to face it in the thought world.
Robert, my position is that economics ought to be built on scientific foundations, not that it is or ought to be a science.
As steam engine design is now based on thermodynamics, so economics should by now be based on human dynamics, but studying the form and operation of a particular type of economy is no more science than studying the form and operation of a particular type of steam engine would be.
To prove my contention that a “Galilean heavy ball” exists in economy, it is sufficient to present only one example. But here I point two from very different fields:
(1) Money is created and destroyed by banks.
Money (in modern monetary system) increases each time and as much as banks* give credit to a person [or buy something from the market**] and decreases each time and as much as debtors return their debt to a bank [and banks sell their properties to the market].
* Central bank is excluded from the above “banks”.
** Market means whole economy outside of banks (here including the central bank.).
This is a “law” found by circulationists in France and Italy. See for example, A. Graziani The Monetary Theory of Production, Cambridge University Press, 2003.
The law can be written algebraically as
ΔM = C – R.
where ΔM is the quantitative change during an arbitrary chosen period, C the amount of credit given by banks (and the purchase of securities by banks) during the period, R the amount returned (and the sales by banks) during the same period.
(2) Stock price fluctuation (log of fluctuation rates) obeys Lévy stable (non-Gaussian) distribution inside of the interval within ±6σ and a fat tail remains outside of it.
This law is confirmed for S&P 500 high resolution [at the time] data (for every minutes or finer) between January 1984 and December 1989 by econophysicists Rosario N. Mantegna and H. Eugene Stanley. It means that stock prices have a thick fat tail than the normal Gaussian distribution. See Mantegna and Stanley An Introduction to Econophysics: Correlations and Complexity in Finance, Cambridge University Press, 2000. (Figure 9.1 in particular)
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Today Shiozawa’s imaginary empty balls are no longer able to hide the truth about money, banks, and predatory parasitic finance behind misleading mathematical masturbations. From Kate Raworth’s Doughnut Economics to Mariana Mazzucato’s The Value of Everything the delusion that money has some intrinsic value or is anything but an abstraction to frequently used by the few to abuse the many through the financialization of the real economy so they can extract real wealth by impoverishing and indebting everyone else. We can choose how money functions in society today (e.g., publicly held state banks serving the commons and not the oligarchs) and that is why it is imperative to expose the ‘Fallacy of Misplaced Concreteness.’
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Hogwash!. Just as Mainstream Economics hides behind if-pigs-could-fly assumptions and mathematical obscurantism so too Shiozawa shows his utter useless Literature-Only econophysics blindness to how the real world works.
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davetaylor1 >> its agents are human, hence biological (emphasis by me)
I have argued how human purposeful behavior in a complex situation is organized. I even argued that animal and human behaviors have the same structure citing Jakob Johann von Uexküll, a pioneer of semiotics.
Read Chapter 1 of our book Microfoundations of Evolutionary Economics (Chapter 1 has the same title as the book itself). You can also read a draft version of the chapter here.
Dave, I don’t really see a distinction between ‘fundamental’ and ‘applied’ science. Relativity is fundamental, and it was applied to make bombs.
To acknowledge the limitation of my own fundamental theory, I’ve characterised it as being about “where to look” rather than looking for “useful facts”.
So only after Einstein had established the relativity of energy and matter could bomb makers see atom bombs as a possibility. Only after I had discovered the emergence of capabilities with increasing self-control over space-time was I able to see PID control systems evolving from mechanical to information forms at the cost of the information needing to be true. Which in the capitalist economies of people who have to grow up it rarely is: “one size – whatever size it is – does not fit all”.
There is however a trap in following the example of classical physics, and the economics discipline fell into it. Some of the nineteenth-century founders of the dominant neoclassical tradition had a bad case of physics envy, and wanted to discover universal ‘laws’ of economic systems. Much has been learnt since then, and a crucial new insight is that living systems cannot be reduced to such simple rules. Living systems include human societies and human economies. The behaviour of living systems is not as predictable as planets, and we must approach them in a more holistic way, and with humility, always keeping in mind the limits of our understanding.” (Economy, Society, Nature: An introduction to the new systems-based, life-friendly economics (World Economics Association Books by Geoff Davies)
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There are no “Galilian heavy balls,” just old men with saggy old physics envy
>> [W]e must approach them in a more holistic way.
Medical science developed enormously in these 70 years. One of main reasons of this fact is the discovery of double helix. Holistic view is recommended since the arrival of modern science, but it never was successful in explaining a complex system. Methodological holism is a kind of romanticism of those people who dream to get a truth by a shortcut without paying patient and enduring efforts.
Studying the whole does not exclude understanding the parts. You need both.
The laws of physics hold even in economics. Trying to apply mathematics inappropriately will always fail. Mathematics per se is not at fault.
Physics has been in flux for well over a century because it cannot deal intellectually with the implications of quantum physics. Grace as in the NATURAL philosophical concept of dynamic, interactive, integrative process is the “Galilian heavy ball” of both physics and economics.
What do you mean by “cannot deal intellectually”?
The conflict between quantum theory and classically empirical physics is entirely reflective of the empirical and epistemological conflict in science in general and every other body of knowledge like economics which aspires to the status of science.
None of these bodies of knowledge will ever become coherent or fully understandable until they understand the natural philosophical concept of grace as in the unity of truths in opposites to the point of thirdness greater oneness.
Physics can’t deal intellectually with the implications of quantum physics? Really? You are in La La Land. You in shrooms or something?
Here is some fun with quantum physics: https://youtu.be/kvSlaIwUCuk
What a _real_ quantum physicist thinks: https://motanomics.com/2019/07/13/quantum-mechanics-and-human-values/
That’s a great video and site. I stand corrected, My original post was not clear about what I actually meant to express which is that many scientists are unconscious of the IMPLICATIONS of quantum physics, that is, that at base the cosmos IS one, and that the way to best understand life is to adopt a mindset of integrative thirdness greater oneness of the apparent duality. That mindset of course is reflective of paradigms and a paradigm change in that it is an integration of a singular concept into a pluralism/pattern that creates a thirdness greater oneness resolution of the problems with the current paradigm.
Thanks Meta. Couldn’t have said it better myself. :-)
Your book makes great points, but RWER is blocking them being posted.
To wit:
The old ‘reductionist’ science of clockworks and rockets and orbiting planets has been brilliantly successful at understanding the physical world, but it has been much less successful at understanding living systems. It is now clear this is because living systems are self-organising systems with emergent properties. This means they must be studied in their wholeness. We can ‘reduce’ a clock to its parts and from those parts understand how the clock works. But we cannot reduce a mouse to its parts and understand from those how a mouse behaves, because a mouse reduced to its parts is dead. ‘Mouse-ness’ is an emergent property. This does not mean we cannot systematically pursue an understanding of mouse behaviour, but we have to do it holistically, and with the humility of knowing the mouse will never be strictly ‘predictable’.
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So modern systems science is capable of accommodating the spontaneity and subtlety of living systems, whereas old reductionist science is not. (Geoff Davies. Economy, Society, Nature: An introduction to the new systems-based, life-friendly economics (World Economics Association Books Book 3) (Kindle Locations 2278-2292). World Economics Association. Kindle Edition.)
To recognize economy as complex system is essential in exploring a good research program for economics. I have been considering about it since 1985. See my papers (three of my early papers):
Economic Behaviours in a Complex System (1990)
The Nature of Knowledge in a Complex World (1998)
Economic theory and the complexity of capitalism (2001)
However, I am against methodological holism, because it is unproductive. We must find a more concrete route (methods and concepts) to analyse complex, self-organizing systems.
I have quickly looked into Davies’ book. It is far better than Lars Syll’s repeated criticisms. Davies has a clear vision on how to develop economics further. I totally agree with him when he writes “The study of economy needs to be fundamentally reworked.”(p.1, Introduction) His book “is to introduce key ideas, to sketch the new conception and to identify important topics remaining to be explored.” (p.10) So far, I support enthusiastically his efforts. However, the actually presented book is a bit disappointing.
In Chapter 9, Davies puts it:
We are almost ready to get more specific about workings of an economy. (p.145)
But, what we read afterwards is a series of parables and preaches for a moral economy. My book with Morioka and Taniguchi had developed a theory on how modern economy works more concretely and analytically without recourse to parables. It is a theory of a complex, self-organizing system that is a world-wide network of productions connected by trade of input goods across countries.
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Shiozawa is the pot (himself) calling the kettle (Geoff) black, except the kettle is consistent while Shiozawa engages in inconsistent anecdotal just-so storytelling and parable weaving while simultaneously spoofing biology. And notably, he thinks his theory doesn’t carry any value assumptions, which it clearly does.
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Take Section 1.3.3 of his book, where he states,
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Shiozawa not only spoofs biology using parables and stories by taking them out of context (i.e., Üxküll’s tick story), but also greatly distorts Üxküll’s actual ideas by removing the context in which Üxküll was theorizing. His reductio ad absurdum story telling ignores vast areas of scientific research into cognitive animal psychology and neurobiological development and capabilities simply because they don’t serve his self-promoting fallacious parable weaving and just-so storytelling.
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Shiozawa’s just-so story telling is little more than a fictitious parable hobbled together from disparate sources cherry-picked out of context to serve is reduction absurdum story that human’s are little more than “social insects,” little automata no more intelligent than a tick. That is, after all, the only hammer he has and the only way to make his greedy reductionism mathematically tractable.
Well Yoshinori, I cannot agree with your description “a series of parables and preaches for a moral economy”.
If you mean to imply there is no knowledge content in my simplified situations exploring the nature of money (for example), then you need to read more slowly and mindfully.
“Parable” is not an accurate description of my quantitative (if simple) demonstrations of instabilities and emergence, nor my summaries of human social nature according to modern psychology, descriptions of central banks, commercial banks and their implications, specific dysfunctions of financial markets, the implications of various kinds of ownership, and the nature of scientific investigation, for example. True there are qualitative sections on how complexity manifests in life, we need actual human context.
I make no apology for advocating an economy that serves a society and all the people within it, if that makes it ‘moral’.
As I said elsewhere here, studying the whole does not preclude studying the parts, we need both. Trying to develop a universal microfoundation may be as futile in evolutionary economics as it has been in other areas. Studying macro phenomena is just a sensible practical way of approaching emergent phenomena. You don’t study ocean waves by starting with quantum mechanics. I don’t want to belittle your work on microfoundations, but please also allow others to take different approaches.
Meta,
thank you for reading Chapter 1 of our book. As I have told BinLi_Algori, it is a kind of Preamble. There is no big difference between what Geoff Davies said in his book and what I have written in Chapter 1 of our book. We show a similar world view. If you like, you can call me pot and Geoff kettle.
Please read Chapters 2 by me and Chapters 3 to 6 by Morioka and Taniguchi.
This part is quite different from what is told in Geoff’s book. We have developed a theory on how modern economy works without assuming unlimited rationality or infinite capability of information gathering (as Arrow and Debreu did).
If I repeat, “It is a theory of a complex, self-organizing system that is a world-wide network of productions connected by trade of input goods across countries.” But we do not need parables, because we could explain how modern economy works algebraically in the sense of J. W. N. Watkins (cited by F. Hayek).
Chapter 1 serves to show that our economic behavior in a complex world is organized as a set of CD-transformations (or a set of quadruples qSS’q’). Between a tick and a human, the size of the sets each has are different. Human set of CD-transformations is very big and men can choose between various options whereas ticks have practically only one series of actions.
From Chapters 2 to 6, we have given concrete sets of behaviors for agents: how firms determine their product prices and how they adjust their production speed (daily volumes). Based on these behavioral assumptions, we could show how a price system emerges together with the choice of production techniques and how the whole system (the network of productions connected by input-output relations) can catch up with the slow change of everyday fluctuating final demands.
(The exact meaning of “slow change” is given in Subsection 2.7.4, just after Theorem 7.2.)
Geoff,
if “parable” sounds strongly offensive, I must change the word. But, I have no intentions to claim that what you have written is not scientific or untrue. I am disappointed only because it is not yet sufficiently concrete.
A science must comprise various parts of different roles and functions. There are some guiding principles or concepts like self-organization, far from equilibrium, “living system” (after you), complexity (or complex system), emergence, and etc. In my field, Geoff Hodgson preaches generalized Darwinism. I am not against these “fundamental” concepts. It is a good guiding principle, but it is not sufficient. We should not stay there or draw too heavily on them. We should make distinction between arguments with these guiding principles and concrete research products. I used the word “parable” to indicate arguments with those concepts like self-organization, far from equilibrium and living systems, but that are not yet formulated precisely as economic processes.
As you are a geologist (or better a geophysicist), let me cite an example from geology. Here we have two statements:
(1) Wegener’s continental drift theory is a scientific hypothesis.
(2) Plate tectonics theory is a scientific hypothesis.
The two theories are scientific but there is a big difference between them. One is a rough idea and the other is based on enormous number of evidence and arguments. You have contributed to explain how plate moves as a part of mantle dynamics. Compared with (2), Wegener’s theory is a kind of parable. (1) and (2) are both scientific hypotheses but (1) is almost a parable in comparison to (2).
Similar things happen in economics. Many heterodox economists praise Hyman Minsky’s financial instability hypothesis. It is instructive and full of various hints, but it remains a parable if we compare with Chapter 4 of Alan Kirman’s book Complex Economics: Individual and collective rationality, Routledge, 2011. Kirman’s argument is more refined than Minsky’s, but I am not satisfied by Kirman’s Chapter 4. Compare it for example with Mantegna and Stanley’s book (that I have cited in my recent post on February 4, 2020 at 4:58 am): An Introduction to Econophysics: Correlations and Complexity in Finance, Cambridge University Press, 2000. The latter is based on real big data and contains profound analyses on possible forms of probability distributions.
Thus, in any science, there are differences of degrees of scientificity. Some are rather parables in comparison to refined analyses based on rich empirical data. To characterize a theory (a hypothesis) a parable does not mean that it is useless or has no scientific contents. Some give precious hints and contribute to the further development.
I am always complaining Lars Syll, because it seems to me that he has no idea to develop economics or on how economics develops or evolves. It is even doubtful if he is really studying any of heterodox economics. There are many hopeful results (though yet quite fragmentary) which are basically different from neoclassical economics.
Thanks Yoshinori. I would not use the word parable. I would agree I have not tried to develop the ideas very far: they are still fairly general. My goal was to introduce a better approach, a better framework that would allow far more productive exploration than neoclassical or some other older ideas. If we start in the wrong place, our efforts can be a complete waste, as neoclassical theory is.
By all means develop the general ideas, but be careful we have enough information and enough related understanding to make the exercise instructive. I might develop a detailed quantitative description of a hypothetical planet somewhere else in the universe but there would be no data to constrain it and no understanding of which processes are likely to dominantly control its properties. We need to build carefully from what we know already.
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Unfortunately, Shiozawa, your word doesn’t hold much value with me given you have made false claims due to faulty memory and lack of due diligence before. You once claimed you needed to re-read Stanislav Andreski’s Social Science as Sorcery (1972) because of your erroneous memory that “According to the book, if I remind it correctly [it wasn’t and you didn’t bother to ‘re-read’ it to make sure it was correct either], social sciences develop by fierce fighting between revolutionary idealists and realistic conservatives who question the plausibility of idealists’ proposals (Yoshinori Shiozawa, RWER Lars Syll: On the irrelevance of economics, 9/5/2019).” After a complete read of his book it was clearly evidence he said no such thing and that you did not remember “it correctly.”
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In fact, Andreski provided a rather succinct statement that pretty much sums up the fundamental fallacy of your so-called theory:
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So you will have to pardon me if I don’t take your word for what Geoff’s books claims but instead read it for myself:
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Geoff takes emergent properties seriously; you don’t as is perfectly evident in your book.
In Lars Syll’s blog there are so many erroneous preconceptions and misunderstanding that I find it difficult where to begin.
Galileo was a mathematician/physicist/astronomer who experimented rolling heavy balls down an inclined plane and measuring time by the quantity of water flowing from a reservoir into a vessel as the balls rolled over small bumps in the plane. He had no way of measuring the time of balls falling from towers.
The description Lars Syll offers of finding every variation of falling bodies is not the way science is now practised. Today complex problems would be examined by dimensional analysis. This is to find the significant factors and their interaction with a minimum of effort.
The statement “In mainstream economics, one has usually settled for the ‘theoretical’ road” is false to fact. In orthodox and heterodox quantitative analysis there is NO theoretical validity. To have theoretical validity the relationships must conform to the quantity calculus. None do!
To claim that there is “not even one single economic law” is also false to fact. Empirically reported laws are Okun’s, Verdoorn’s etc,. plus Kaldor’s stylised facts. That these exist and are valid is confirmed by my analysis “Transient Development” (RWER-81).
The models used by economists are wrong as they do not take physical time into account as it transpires in the real world.
Frank, I feel sorry for the non-physicists here who were brought up on Hume’s “black box” (empty head) theory of human personality: that on average our being surrounded by goods has resulted in our wanting more. We are old enough to have been taught dimensional theory, but they never were, and even our successors have succumbed to “big data” computing. I’ve just come across your point about Galileo’s water clock in Gleick’s “Isaac Newton”, but which also explains why your ‘laws’ are mathematical rather than physical ones.
Frankly, both you and Craig are a pain because you don’t make an effort to change the way you say things so we have a chance of what Chesterton called “stereoscopic vision”: seeing two different meanings at the same time yet seeing all the better for that. In physics I am with you about your Quantity Calculus, but as a mathematician I say that prohibits adding apples to pears, and you are not dealing with the ordering of events in topological systems, which suffices for understanding where to look if not for detailing specific applications. The same can be said of your Transient Analysis, which applies to Production, not economies.
Contra Meta Capitalism, I don’t think Craig is in “La la land” for seeing physics “cannot deal intellectually with the implications of quantum physics” and “Grace as in the NATURAL philosophical concept”; in fact I agree with him, except regarding grace being “natural”. As I see it, physicists too haven’t understood particles as involving topological closure of energetic motion, nor their having chosen axiomatically from four possible energy states to explain the Big Bang, another (which indeed is more natural among people not thinking in terms of energy) being creation by a father God, i.e. energy expressing the Grace of a loving God. Where I do think he is in “La la land” is in thinking he can extrapolate this to giving rebates rather than giving fair shares (plus honorary incentives from prizes to nobility and Nobels).
I agree with your stating my transient analysis is production theory. However the mathematics therein describes every economic law and stylised fact which are present empirically.
The flaw in your geology as an exemplar Geoff is that for decades Alfred Wegner’s theory of Continental Drift was ignored despite the overwhelming evidence in it’s favor. So science alone, facts and even evidence alone, doesn’t even sway the institutional and historical inertia of a given culture’s scientists. Specifically the American response and it’s intransigence compared to European response.
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Science cannot solve the value crisis the roots of which are historical and rooted in political power and cultural predjudices and out-right ignorance.
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Without a certain degree of moral and ethical (and ethics is philosophy, after all) maturity level within a culture science cannot really flourish. When respect for truth dies, when post-truth alt-fact comes to hold equal footing with sound science, a civilizational decline is inevitable. Another dark ages is a very real possibility.
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Just look at the United States right now for proof that decline of culture, historical awareness , morality, and philosophy of ethics
What the hell are you always slamming me for. You completely agree with the philosophy I’ve been advocating here for years. Yes, I am evangelical about what I consider the new monetary and financial paradigm, but not without good empirical and philosophical reason. Hence I’m confident, not arrogant, impatient, yes, because there is a rational end to patience especially when survival may be in the balance.
What do you think the concept of a new monetary and financial paradigm might be. I’ve asked this question of the group several times, but no one ever takes up the challenge. They just squirrel off into their palliative reforms, personal agendas, complain about complexities and/or re-iterate the same heterodox critiques we’ve all come to agree upon. Give it a shot. After a while you come to accept the invalidation or unresponsiveness. It doesn’t kill you.
Meta, I don’t claim science will inevitably triumph, nor that it is perfect. It is clearly far from perfect and the failure to take Wegener’s ideas seriously is a good example. (However his evidence was not ‘overwhelming’, though I would agree it was plausible and should have been investigated.) There are plenty of other examples of scientists refusing to take alternative ideas seriously and I was involved in some of them. Scientists are human, with egos and all the quirks of human ‘intelligence’.
However I say this about science: it has a much better bullshit filter than to politics and the media, for example.
But really I think this is beside the point here, which is some people claiming you can’t do proper science if it involves people, or if you can’t do experiments with control groups.
Astronomy also cannot manipulate the objects of its study, nor is it a science that tries to predict what will happen next. It tries to understand, and does a bloody good job of it.
Love your bibliography by the way!
Really enjoying your book Geoff. Most certainly going to get it for my daughters.
I am sorry if you feel the comment somehow relates to you. It doesn’t.
If you’re referring to me it certainly does express much of the same philosophy I advocate. I wasn’t assuming it was even addressed to me. I was just wondering why and how you could have been so aggressively critical of me despite thinking so much in the same terms.
Not willing to take a dive into conjecturing about the new monetary and financial paradigm, huh?
In my view you are an evangelical with religious zeal. I wish you well, but I don’t agree with your one size fits all solutions. Gerald asked reasonable questions and your response was less than reasonable. So I simply cannot see any value in engaging in dialogue, this is my last comment.
Well,…thanks for the reply. However, it’s actually everyone else here who has the one size (heterodoxy) fits most everything (except the breakthrough conceptual insight/new tool/monopoly busting phenomenon known as a paradigm change) not me. I’m behind 99% of heterodoxy myself because that is how science ploddingly advances as Kuhn observed. Too bad Kuhn looked only at science instead of paradigms themselves, their actual operations and their accomplished signatures. Paradigms and “Paradigmology” being the quintessential integrative phenomenon and study is exactly what science needs.
Reread the thread, Gerald asked me questions designed to invalidate and I gave him solid mathematical and philosophical answers.
We’re right where we need to be, we just have to stand in the light of the obvious. When all of the leading heterodox reforms are about money and finance that’s a glaring indicator that what economics needs is to find the paradigm there.
Anyway….
It was by a number of renowned geolgists (de Toit, Holmes, Joly, Daly, and others whom I can’t remember off the top of my head). I believe it was Holmes who theorized about convection cells. So the reasons for American intransigence had more to do with cultural methodological bias than an unimpassioned search for truth.
The reason in my view science has a good bullshit filter is because old heads die off and science advances one funeral at a time. This allows younger and more open minded scientists to press the facts and evidence forward that the old heads refuse to see for any number of reasons.
But you cannot escape politics in pressing the scientific issues, not within the academic institutions or wider society itself when it comes to public policy. That is why narratives like yours are so important. They tell a story that resituates human beings within the natural and social context with a vision of sustainable practices.
I totally agree with your last point about regarding the brain-dead idea that one can’t do the science if it involves people, but I don’t think that is what Lars is saying.