Home > Uncategorized > Economists need to rethink the foundations of their discipline

Economists need to rethink the foundations of their discipline

from Ken Zimmerman (originally a comment)

Economists are fixated on a framework developed for relationships that are fixed and predictable. Relationships involving humans are neither fixed nor predictable. So the problem infecting economics is a simple one — it’s using the wrong framework. Which means of course economists can never reveal anything of importance or useful in understanding economic relationships. Economists need to rethink the foundations of their discipline.

If, as I believe economics is a social science, here are some things economists need to consider in doing the make over of their discipline.

The social sciences are about how society works. Social scientists examine institutions like the government, the economy, and family; they also study how individuals and groups interact with one another and the roots of human behavior.

Some examples of social sciences include the following:

Anthropology
Economics
Geography
Political science
Psychology
Sociology

Social science differs from natural science in that it examines the human constructed world rather than the physical world. Fields like biology, chemistry, and physics use the original scientific method to propose hypotheses and theories. And then to test these empirically. Experimentally if possible. Social scientists rely on similar methods, such as quantitative data analysis, to study society. Proposing hypotheses and theories. Which are then tested through such means as surveys, observation (direct and indirect), interviews, etc.

The social sciences also share some of the same methodological approaches as those used in the humanities, like qualitative research. Both the humanities and social sciences use analytical and interpretive approaches to learn more about the human world.

The social sciences share some of the same methodological approaches as those used in the natural sciences and humanities. Such as mathematics and experimentation (quasi). For example, economists rely on statistics and forecasting to understand trends, while political scientists use surveys and polling to track political changes.

Still the question sometimes arises whether certain fields — including anthropology, psychology, economics, history, sociology, and political science — fall under the umbrella of the humanities or social sciences. In my view they are clearly sciences. But sciences with a subject of study that demands a framework fundamentally different from the ‘natural ‘ sciences.

  1. Gerald Holtham
    June 1, 2021 at 7:39 pm

    Herbert Simon’s “The sciences of the artificial” is still informative about the difference between the scientific study of nature and the study of human constructs like social institutions. He was very good on the Chinese boxes or Russian dolls nature of reality. As he said: the possibility of building a mathematical theory of a system..does not depend on having an adequate microtheory of the natural laws that govern the system components. Such a theory might indeed be simply irrelevant. He added: “This is lucky, else the safety of bridges and airplanes might depend on the correctness of…our way ..of looking at elementary particles.” Everything depends in some sense on quarks but the Wright brothers did not have to know about them. When you consider the time economists have wasted worrying about “microfoundations” it is clear this insight has not registered. Computer simulations have shown that certain market outcomes are largely independent of variations in individual behaviour. You don’t have to plumb the human soul to understand the origin of certain social phenomena and to make conditional predictions. Crowd phenomena are more predictable than individuals.
    Some science of the artificial is possible therefore, though not approaching the stability and regularity of natural sciences. Economics has failed to make the progress it might through being excessively interested in achieving analytic “results” or theorems. That has led to excessively simple, unrealistic models. Accepting that reality is complicated and messy and using simulation of systems with no unique solution is regarded as a second-rate approach whereas it is generally far more fruitful than the usual one.

  2. Robert Locke
    June 2, 2021 at 8:29 am

    As an historian I always have trouble when social scientists reify the evidence. The results do not ring true, just like social scients hae trouble when historians deal with specificities.

  3. Gerald Holtham
    June 3, 2021 at 12:57 pm

    Robert, I have no difficulty at all when historians deal with specificities. It is an essential part of understanding particular situations or events, determining causes and trying to trace consequences. Even so history is comprehensible only because we make certain broad assumptions about people: that their actions are usually purposeful, that on the whole they would prefer to be richer than poorer, that if they get money they spend it to establish status, that many people desire power and when they get it use the means to hand to maintain it. There are exceptions to all rules, as Disraeli remarked, but if we could not assume some broad motivations in people (i.e. depend on some generalisations) events would be incomprehensible. Social science tries to examine such generalisations to see if it can establish the conditions under which they are more likely to be true. It is a more hazardous enterprise than history but complementary and not an alternative.

    • Robert Locke
      June 3, 2021 at 3:39 pm

      “history is comprehensible only because we make certain broad assumptions about people: that their actions are usually purposeful, that on the whole they would prefer to be richer than poorer, that if they get money they spend it to establish status, that many people desire power and when they get it use the means to hand to maintain it”

      Specificities show these assumptions so wrong,which is why I find almost nothing of use in social science in my work as an historian.

      • pfeffertag
        June 4, 2021 at 9:27 am

        When I read that quote I thought it plain good sense and a good fit to history. I am curious as to why you think it wrong as a historian.

      • Robert Locke
        June 4, 2021 at 10:35 am

        Pfeffertag, I ran into problems usinf social science when I tried to compare management in US and German higher education and firms, Here is what I wrote i Appreciating mental Capitalism

        “German technical and commercial management education interrelated with German firms
        differently. Neither firms nor schools accepted the idea that management was a
        generalist function. There were few MBA programs in Germany. German firms hire
        specialists, in accounting, mechanical engineering, etc. but do not consider management
        itself a specialty.

        As Peter Lawrence explained in a book about German management
        published in 1980, Germans do not appreciate ‘the general processes of communication,
        decision-making, coordination, and control’, the sort of ‘managerialism taught in American
        business schools’ any more than they appreciate the rationale of French ‘encyclopedic’
        engineering education (Lawrence, 1980, 146). On the other hand, Americans thought
        German leadership lacked ‘planning and control, analysis, especially quantitative
        analysis, and marketing and business strategy, together with all the systems and
        techniques that support them’ that were taught to MBAs in US business schools
        (Lawrence, 1980, p. 146).

        To acquire the managerial attributes that Germans prized, people had to follow a different
        educational and career path in the firm: focus on subject-based specialist pre-experience
        education (law, specialties in business economics and above all engineering for their first
        degree) and then at the graduate level do research projects or graduate research
        doctorates on a special topic. In Germany once on the job, active managers from the firstline supervisory level and even skilled workers, through middle management to the top,
        are sent for post-experience training in short courses that focus on specific topics rather
        than general management subjects. Germans are underrepresented in famous
        international management educational institutes, INSEAD, IMEDE, and the Harvard
        Business School.

        Germans want to learn useful functional leadership skills for the job
        rather than general skills of a management professional. In a firm everybody learns about
        management tacitly at work or on special courses or secondment; then, based on talent
        and performance, the individual moves up.
        The process works well where the locus of management is firm centered. The firm
        identifies the problem and decides (by know-how and know-who networking) where to
        acquire the skills and knowledge inside the firm and outside in the educational
        establishment, to solve it. Since the firms’ managements are co-determined, employeeelected works councilors as well as managers have a say in the problem-solving process.

      • Robert Locke
        June 4, 2021 at 10:55 am

        Peter lawrence also said that in his interviews, they , the Germans, rarely say their goal is to make money, that puzzles americans, because it is the mentality of us ceos. Germans say it is to serve customers.with good products and services.

  4. pfeffertag
    June 4, 2021 at 9:26 am

    “Fields like biology, chemistry, and physics use the original scientific method to propose hypotheses and theories. And then to test these empirically. Experimentally if possible. Social scientists rely on similar methods, such as quantitative data analysis, to study society.”

    But, Ken, quantitative data analysis is not similar to the scientific method—not if you are talking about theory. In a sense, it is the opposite of the scientific method.

    The natural sciences don’t use quantitative data analysis. At least, they not above the molecular level. Molecules and below can be treated statistically but otherwise quantitative data analysis is not used for scientific purposes.

    Quantitative analysis collects data from reality. By contrast, a science hypothesis is a relationship between theoretical concepts which are dreamt up by the theorist. They do not exist in reality and they are considered isolated from real influences.

    For example, aerodynamics theory assumes air to be flowing in thin, incompressible layers, friction-free, over a perfect geometric profile. To study aerodynamics the social science way would be to collect data about blowing autumn leaves, put it all into a computer and see what correlates with what.

    Social science collects data about people and looks to see what correlates. It has done this since its early days and since computers became available it has done it on a massive scale. In theory terms it has achieved nothing.

    Using quantitative data analysis is not scientific; it is not similar to the scientific method. Yet social science thinks it is—and then wails that the scientific method doesn’t work in social science!

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