Home > Uncategorized > Mainstream economics — sacrificing realism at the altar of mathematical purity

Mainstream economics — sacrificing realism at the altar of mathematical purity

from Lars Syll

e0f5b445c333de539ad33c6a63606b56This critique goes beyond the narrowly technical — that the workhorse neoclassical model of the economy was found to be lame when it came to running a real crisis race. The deeper critique is that these models, and the technical language that accompanies them, have played a role in policy and in society that has been disproportionate in two senses. First, disproportionate relative to our state of knowledge. Existing economic frameworks have shouldered a policy weight that is simply too great for them to bear, given the degree of uncertainty and fragility that surrounds them. Second, disproportionate because these frameworks placed an excessive degree of policy power in the hands of the technocrats wielding them …

Mainstream economic models have sacrificed too much realism at the altar of mathematical purity. Their various simplifying assumptions have served aesthetic rather than practical ends. As a profession, economics has become too much of a methodological monoculture. And that lack of intellectual diversity cost the profession dear when the single crop failed spectacularly during the crisis. This monoculture, it is argued, has also narrowed the economics curriculum in universities. This has generated an ever greater focus on the mathematical gymnastics of optimising models and too little focus on the everyday aerobics of how the economy functions. Accompanying this has been a neglect of disciplines that abut and illuminate economics: economic history, moral philosophy, money and banking, radical uncertainty, non-rational expectations. In short, neglect of the very things that make economics interesting and economies important.

Andrew Haldane (former chief economist at BoE)

  1. June 5, 2022 at 11:56 pm

    Difficult to overcome an ideology, as supported by single interest (self-interest only) theory in Microecomics. Some of us have tried, as with dual interest (joint self & shared other-interest) theory in Metaeconomics, based in the empirical science of Behavioral Economics. Few are seemingly willing to try even the most viable of alternatives, like Metaeconomics, perhaps because Microeconomics fits the ideology of the person using it. If intrigued with moving away from economic ideology hidden in the theory of Microeconomics, see https://www.metaeconomics.info and the Blog (including reference to the new Metaeconomics book) at said site. It works, solves dozens of paradoxes and puzzles, and holds up to empirical test. It could go a long ways to supplementing if not replacing mainstream Microeconomics, and, as a result, also returning economics to the realm of science rather than mere ideology.

  2. June 6, 2022 at 1:08 am

    “Existing economic frameworks have shouldered a policy weight that is simply too great for them to bear”.

    That is too kind. Real economies show behaviour that is *radically* different from “existing economic frameworks” – far from equilibrium versus near-equilibrium, wild horses modelled as a rocking horse.

    “Existing economic frameworks” cannot yield a financial market crash, a major dysfunction of present financialised economies. They are worse than useless.

    Aesthetics is only part of the problem. The other part is that the history of neoclassical theory is a history of desperately excluding anything that will upset the general equilibrium, and thus invalidate the neoliberal/libertarian ideology.

    • metaecongary
      June 6, 2022 at 3:31 am

      Exactly. It is about upsetting, invalidating the neoliberal/libertarian ideology: Single interest theory in Microeconomics supports the ideology, so, the theory is impermeable to any change. And, every attempt to suggest alternative theory (like dual interest theory) has been in effect ignored, even though supported in Behavioral Economics Science which has consistenty demonstrated the weak, virtually nonexistent scientific foundation of mainstream economics. Behavioral Economics uses data and empirical analysis, testing ideologies. I have experienced it at a very personal level, with my empirical work (which eventually led to develping dual interest theory) rejected over and over again (except in the heterodox literature, where it is published)

  3. deshoebox
    June 6, 2022 at 3:05 am

    Geoff, chill out! Yes, things are obviously as bad as you say but at your age, can you afford to get this steamed about anything? Grabbing the baton from your trembling fingers, I’d like to chime in with this: It has become clear to me that the history and present condition of conventional economics show that for reasons the reader is left to work out for him or herself, the so-called discipline of economics was deliberately shaped and guided so as to create a professional class of people who will dependably fail to understand certain things and who will never ask certain kinds of questoins. Whatever you may think of economics, you gotta hand it to them. This is a truly marvelous achievement!

    • metaecongary
      June 6, 2022 at 3:40 am

      Marvelous achievement at brain washing generations of young people to believer in the ideology of self-interest. Every Microeconomics text and Econ 101 course is about preaching the ideology of self-interest. It encourages the Econ and denies that most people are better described as a Human (the latter having both self & other-interest, I&We, person&community, and, writ large, seeing a role for a joint market&government, not just the self-interest of the market).

    • June 7, 2022 at 1:48 am

      Well thank you for your concern deshoe. I’ll leave aside the implication about my being of a certain age and just assure you that I’ve saying these things for so long they just roll out without me getting steamed up at all. Just put it out again, and again, … in hopes a few more souls might notice. But thanks for joining the little chorus.

  4. metaecongary
    June 6, 2022 at 3:16 am

    The problem is that single interest theory in Microeconomics is an ideology, not based in empirical science. Try dual interest theory in Metaeconomics: It brings empirical data, analysis back intro view, as in Behavioral Economics science. To get started, see https://www.metaeconomics.info.

  5. robert r locke
    June 6, 2022 at 5:33 am

    no achievement at all. That is why I became an historian. My conclusions about the contemporay worllf have beeb spot on. I’ am 90.

    • June 7, 2022 at 1:49 am

      And thank you for your insightful inputs here Robert.

      • Meta Capitalism
        June 7, 2022 at 10:30 am

        I second Geoff’s appreciation of Robert. I think it would be nice to see a collection of his wisdom over the years. Perhaps someday I can put one together.

    • Edward Ross
      June 7, 2022 at 11:54 pm

      Thank you Robert ,June 6,2022at 5.33 am
      While i support much of what Geoff Davies writes their are some their I would like to discuss with him some day eg the importance of looking after trees once you have planted them and doing it on a much greater scale than at present.
      re Meta Capitalism a great idea because in my humble opinion i think history explains how we have arrived at the present and is an answer to the to the political ideological and BS proper gander the public are fed with. For example Putins justification for murduring and making homeless millions of people while he makes all sorts of dire threats of what he might make to those who might stand up to him .MY challenge to the coming G20 is whether he attends it or not is to condemn his actions. At 86 i do not have a great deal to telling the truth as i see it, yesterday i had another spinal injection this morning i am of to the compuuttor technician for its jab. thank you all Ted

  6. yoshinorishiozawa
    June 6, 2022 at 10:24 am

    Did Metacapitalism remind Lars Syll of his old post some six years ago?

    It would be sufficient for me to cite Dave Marsey’s comment on Syll’s post on 23 Nov, 2016:

    [A]s a mathematician I do accept with regret that ” mathematicians have had a large part to play in events that have brought the financial markets to their knees (GFC, LTCM crisis).” This is something that needed correcting, as I have been arguing since the late 90s. But I do not accept that continuing to side-line the relevant mathematics is the answer: it just means that we will be equally misguided in the future, and equally or more liable to crises, not just financial.

    Many mathematicians, including Keynes and Russell, have for many years been noting that the misuse of mathematics has been having a large part to play in events that brought about various crises. In this sense the financial crisis was just one more.

    The following is a more recent comment by (Anwar?) Shaikh on 3 Jun, 2022 on Syll’s blog:

    Thank you, Andrew! Those of us who have gone against the grain have been long ignored by the orthodoxy. But we continue nonetheless.

    I agree that the key problem is the sterile framework of the orthodoxy, which math only disguises. Math is the Latin of this High Church, but one should not blame Latin for the doctrines of the Church.
    Anwar

    In my opinion, making a scapegoat out of mathematics for all failures of neoclassical economics is just wrong, because it forgives the core logic of neoclassical economics untouched.

    • Meta Capitalism
      June 6, 2022 at 10:15 pm

      You are confused. metaecongary posted. You are projecting again :-)

    • Meta Capitalism
      June 7, 2022 at 1:15 am

      Shiozawa included his own words in th comment by Anwar (shaikh945):

      Thank you, Andrew! Those of us who have gone against the grain have been long ignored by the orthodoxy. But we continue nonetheless. I agree that the key problem is the sterile framework of the orthodoxy, which math only disguises. Math is the Latin of this High Church, but one should not blame Latin for the doctrines of the Church. (Shaikh Anwar, Lar’s Blog) comment-53677

      .
      Shiozawa’s comment above:
      .

      In my opinion, making a scapegoat out of mathematics for all failures of neoclassical economics is just wrong, because it forgives the core logic of neoclassical economics untouched. (Shiozawa, RWER, Straw Man Argument)

      .
      Most interesting though is Nanikore’s reply which goes to the core of problem.

    • yoshinorishiozawa
      June 7, 2022 at 4:33 am

      Meta,

      you posted on May 31, 2022 at 2:02 am in a comment to Neva Goodwin’s Contextual economics on May 30, 2022 and cited a paragraph from Andrew Haldane:

      Mainstream economic models have sacrificed too much realism at the altar of mathematical purity…. this has generated and ever greater focus on the mathematical gymnastics of optimizing models and too little focus on the everyday aerobics of how the economy functions. Accompanying this has been the neglect of disciplines that abut and illuminate economics: economic history, moral philosophy, money and banking, radical uncertainty, non-rational expectations. (Andrew Haldane, Chief Economist at the bank of England. In Foreword to The Econocracy: The Perils of Leaving Economic to the Experts. xiv-xv)

      .

      If this is a pure coincidence, you were truly prescient. Or do you and Lars have a strange wave of thinking synchronicity?

      • Meta Capitalism
        June 8, 2022 at 1:10 am

        If this is a pure coincidence, you were truly prescient. Or do you and Lars have a strange wave of thinking synchronicity?

        I read widely and The Econocracy is one of the books published by <a href="https://www.rethinkeconomics.org/"Rethinking Economics. I also read all the books on the right hand side from the WEA. I also read widely outside of these sites. So it is not really surprising we come find the same author worth citing.

      • yoshinorishiozawa
        June 8, 2022 at 12:53 pm

        What I am saying is that you may have stimulated Lars Syll to repeat the present topic. It is almost evident that he read your comment.

    • yoshinorishiozawa
      June 7, 2022 at 5:11 am

      The citation from Shaikh I made in my comment above on June 6, 2022 at 10:24 am contains an error. The last tree lines were mine and not Shiakh’s. So the correct citation is

      Thank you, Andrew! Those of us who have gone against the grain have been long ignored by the orthodoxy. But we continue nonetheless.

      I agree that the key problem is the sterile framework of the orthodoxy, which math only disguises. Math is the Latin of this High Church, but one should not blame Latin for the doctrines of the Church.
      Anwar

  7. Andri Stahel
    June 6, 2022 at 2:53 pm

    “Mainstream economic models have sacrificed too much realism at the altar of mathematical purity. Their various simplifying assumptions have served aesthetic rather than practical ends.”
    As I argued elsewhere, if we do not see that the real problem of modern economics is ideological and that it has become, as such, primarily an ideological tool and not a way to inquire into reality, we will keep trying to discuss it in terms of science as if it were a science. It is not. It is about power and policy, not about knowledge. The way economics has become is not just a matter of incomplete understanding of reality. That is why the analogy between Medieval Theology and modern Economics is not just a curiosity or paradox, but a serious matter… I have discussed this more in detail elsewhere: http://www.paecon.net/PAEReview/issue97/Stahel97.pdf

    • metaecongary
      June 7, 2022 at 8:21 pm

      Exactly. It is an ideology favoring libertarians, with said philosophy driving the self-interest. Mathematical Metaeconomics (using dual interest theory) fixes the problem, shifting to the empirica question of the best balance in self & other (shared with others, with the community of shared)-interest. What balance works best, pragmatically (pragmatism) speaking? Mathematics can be used to guide what empirical question to ask, including which philosophy works best.

      • metaecongary
        June 7, 2022 at 8:23 pm

        Mathematics is not the problem: The problem is in not reflecting the true nature of human nature (a Human has dual interest, not just self-interest), and, in presuming (without empirical test) that libertarian philosophy, framing is somehow the best.

      • metaecongary
        June 7, 2022 at 8:35 pm

        Try Mathematical Metaeconomics: It works, standing-up to empirical test, including giving a framework for examining which point on the ideological spectrum works best for each situation in question. And, generally, writ large, it points to the search for good balance in joint market & government, each now deemed essential to the other.

      • Meta Capitalism
        June 8, 2022 at 12:55 am

        Look forward to reading your book.

      • Meta Capitalism
        June 8, 2022 at 5:28 am

        I really enjoy reading your blog. You clearly don’t fence off the important issues. Look forward to reading your book. Does it address the topic of degrowth?

      • metaecongary
        June 9, 2022 at 5:13 am

        Metacapitalism: Good to hear you are finding the Blog intriguing. It actually has surprised me, as to how Dual Interest Theory works so well, bringing new insights into every economic issue one tackles. My hypothesis is: Real Humans have dual interess, so, a theory reflecting that reality just works better.

        On degrowth: Well, indirectly, it is in a sense built into the framework because it acknowleges 1st and 2nd law thermodynamics, as in Ecological Economics. The notion of empathy -based other-interest also means empathy with the various components of the Spaceship system, so, growth must be tempered by same. Unfettered growth is not consistent with the essential need to temper it with the shared other-interest, including especially the shared other-interest with other living systems on the Spaceship on which we Travel around the Sun!

    • yoshinorishiozawa
      June 8, 2022 at 1:38 am

      Andri,
      I am reading your paper: “Has economics become a new theology?” The parable is superb.

      Metaecon,
      I have a trouble in accessing your web site. So, let me explain in short how you are planning to reconstruct the economics. Admitting that humans have dual interest, how does it change the economics? Does your price theory (or any other topics in economics such as growth theory, unemployment, theory of firms, etc.) become much different from the existing one?

      • metaecongary
        June 9, 2022 at 5:02 am

        Website link is https://www.metaeconomics.info/. There is also a new book available through various sources (see the first Post in the Metaeconomics Blog). Metaeconomics: Tempering Excessive Greed, which builds on a large literature, lots of journal references (including my own papers) used to build and support dual interest theory which is built on an empirical foundation.

        And, yes, it changes the outcome of the economic analysis of virtually every economic question. Why? Mainly because it does not predetermine the outcome as does the ideology of self-interest represented in Microeconomics. The outcome is determined by empirical analysis using data. Also, it deals with the biological, neuroligical reality of how the Human brain has evolved, with the two tendencies of ego-based self-interest (primal) which must be tempered by, balanced with empathy-based other (shared with the other, that which the other can go along with)-interest. And, again, how it is balanced in each question is an empirical question, not an ideological claim.

        Tempering the excesses is key in considering the big questions, like economic growth, unemployment and the role of labor generally, and, well, the theory of firms is hugely different because firms must pay attention to that which is shared with other firms, the Spaceship system within which firms are embedded, and, with the consumer. Bringing the shared other – interest — empathy based ethics — into view changes the entire frame of economics.

  8. yoshinorishiozawa
    June 10, 2022 at 3:58 pm

    Thank you, Metaecon.

    I found an interesting paper on Metaeconomics:
    Becchio, G. 2009 A Historial note on the original meaning of metaeconomics. INTELLECTUAL ECONOMICS 1(5): 7–11.

    • metaecongary
      June 13, 2022 at 3:56 pm

      Yes. I cite Becchio (2009), and use a lot of the content of it, in my Metaeconomics book, tracing the history of the use of the construct. The framework has an intriguing history, now having a specific theory (dual interest theory) embedded within it..

      • Meta Capitalism
        June 16, 2022 at 4:44 pm

        Abstract. This is a brief note on the original meaning of the term “metaeconomics” that was coined in 1936, in Vienna, by the mathematician Karl Menger. He was involved in the Viennese debate on the relation between mathematics and logics. As he was a strong supporter of Hilbert’s program, he applied it to social sciences (economics and ethics in particular) in order to find their logical structure. From the point of view of the history of economic theory, Hilbertism was the philosophical framework of the following economic mainstream, i.e. the neoclassical approach. In neoclassical economic theory, there is no place for moral considerations and ethics remained strictly separated from economics. Contemporary behavioural economics considers metaeconomics as a tool for re-embedding ethics into economics, this is an example of the so-called “heterogenesis of the aims” (Becchio, Giandomenica (University of Torino, Department of Economics). A Historical Note on the Original Meaning of Metaeconomics. INTELEKTINË EKONOMIKA (INTELLECTUAL ECONOMICS). 2009; 1(5):7-11.)

        .
        Thank you Shiozawa for pointing out this paper. Metaecon, I look forward to reading your book as soon as I can get access to a copy. That may prove difficult though.
        .
        The “re-embedding ethics into economics” is a subject I take great interest in. Adam Smith wrote two books, the more important of which was his “Theory of Moral Sentiments.” He addressed the social aspect and potential abuses of capitalism in this work. The work by Smith & Wilson is about this side of Adam Smith. I look forward to reading the list below along with your book and comparing them.

        I am personally interested in degrowth and the civil economy and how new business models based upon local economic renewal can be created in such places as Japan and rural America.

        A few references:

        1. Arvidsson, Adam and Peitersen Nicolai. The Ethical Economy [Rebuilding Value After the Crisis]. New York: Columbia University Press; 2013.
        2. Bruni, Luigino and Zamagni Stefano. Civil Economy [Another Idea of the Market]. Barth Lane, Newcastle upon Tyne: Agenda Publishing; 2016; c2015.
        3. Fridenson, Patrick and Takeom Kikkawa. Ethical Capitalism [Shibusawa Eiichi and Business Leadership in Global Perspective]. Toronto: University of Toronto Press; 2017.
        4. Nelson, Robert H. Economics as Religion [From Samuelson to Chicago and Beyond]. University Park: Pen State Press; 2001.
        5. Sedlacek, Tomas. Economics of Good and Evil [The Quest for Economic Meaning from Gilgamesh to Wall Street]. New York: Oxford University Press; 2011.
        6. Smith, Vernon L. and Wilson, Bart J. Humanomics [Moral Sentiments and the Wealth of Nations for the Twenty-First Century]. Kindle Edition ed. Cambridge: Cambridge University Press; 2019.

  9. June 11, 2022 at 8:48 am

    Since some commenters here seem to misinterpret yours truly’s view on the use onf mathematics in social sciences, I take the opportunity to make some clarifications.
    As social researchers, we should never equate science with mathematics and statistical calculation. All science entails human judgment, and using mathematical and statistical models doesn’t relieve us of that necessity. They are no substitutes for doing real science. Mathematics is ONE valuable tool among other valuable tools for understanding and explaining things in economics. What is, however, totally wrong, are the utterly simplistic beliefs that “math is the ONLY valid tool”, “math is always and everywhere self-evidently applicable”, “math is all that really counts”, “if it’s not in math, it’s not really economics”.And let us never forget that math cannot establish the truth value of a fact. It never has, and never will.

    • yoshinorishiozawa
      June 11, 2022 at 9:08 pm

      It is much clear, Lars.

      All right! Mathematics is ONE valuable tool among other valuable tools for understanding and explaining things in economics. So, you approve that mathematics is a valuable tool for understanding and explaining things in economics.

      You emphasized that

      What is, however, totally wrong, are the utterly simplistic beliefs that “math is the ONLY valid tool”, “math is always and everywhere self-evidently applicable”, “math is all that really counts”, “if it’s not in math, it’s not really economics”.

      As a caricature of neoclassical economics, you may contend so. But, it is a sheer scarecrow. Who, among great neoclassical economists of the scale of Paul Samuelson, Kenneth Arrow, and Frank Hahn, claimed that “math is the ONLY valid tool” in economics? Who contended that “math is all that really counts”? I want to know who did. (One possibility is Gerard Debreu who was a mathematician rather than an economist. Stephen Smale is really a great mathematician but I doubt if he is a good economist. But, I do not know if they have ever stated any of silly contentions as you have stated.)

      Perhaps there are some silly students or premature economists who stated such claims. But, it it a good strategy to denounce such silly people’s idea? In my opinion, we must prove that neoclassical economics at its best level is nonetheless completely wrong. We have plenty of topics to say on this direction: aggregate production function, demand and supply function, decreasing returns to scale, equilibrium and disequilibrium framework, rational economic man (or woman) (as compared to Simon’s bounded rationality), and etc. Why don’t you attack directly the essential core of neoclassical economics?

      • yoshinorishiozawa
        June 20, 2022 at 4:03 pm

        Lars Syll pointed in the above reply:

        What is, however, totally wrong, are the utterly simplistic beliefs that “math is the ONLY valid tool”, “math is always and everywhere self-evidently applicable”, “math is all that really counts”, “if it’s not in math, it’s not really economics”.

        It is probable that Lars Syll has been influenced by Tony Lawson, who advanced a similar claim such as this one:

        [T}he state of modern economics does illustrate the reasoning within the main text. For many years, the discipline has been dominated by those who advocate that the project of mathematical modelling is the only proper and acceptable form of economics. This project has been widely found to be almost without relevance to the provision of insight (see, e.g., Lawson 1997, 2003) (Tony Lawson 2019 The Nature of Social Reality, p.249, n.17)

        Although Lawson cited his books, at least as far as I see Lawson (1997), it seems no clear citations with this claims from someone of major mainstream economists. I cannot tell if he has shown in Lawson (2003) (because I have no copy with me) any evidence that someone of big scale had stated a silly statement as Syll claimed. We must ask who really did.

      • yoshinorishiozawa
        June 21, 2022 at 2:58 pm

        It seems I made a mistake in putting my closing tag in correct spelling.

        Lars Syll pointed in the above reply:

        What is, however, totally wrong, are the utterly simplistic beliefs that “math is the ONLY valid tool”, “math is always and everywhere self-evidently applicable”, “math is all that really counts”, “if it’s not in math, it’s not really economics”.

        It is probable that Lars Syll has been influenced by Tony Lawson, who advanced a similar claim such as this one:

        [T}he state of modern economics does illustrate the reasoning within the main text. For many years, the discipline has been dominated by those who advocate that the project of mathematical modelling is the only proper and acceptable form of economics. This project has been widely found to be almost without relevance to the provision of insight (see, e.g., Lawson 1997, 2003) (Tony Lawson 2019 The Nature of Social Reality, p.249, n.17)

        Although Lawson cited his books, at least as far as I see Lawson (1997), it seems no clear citations with this claims from someone of major mainstream economists. I cannot tell if he has shown in Lawson (2003) (because I have no copy with me) any evidence that someone of big scale had stated a silly statement as Syll claimed. We must ask who really did.

      • Meta Capitalism
        June 23, 2022 at 6:29 am

        Though not the biggest issue in the scheme of things, the state of modern economics does illustrate the reasoning within the main text. For many years, the discipline has been dominated by those who advocate that the project of mathematical modelling is the only proper and acceptable form of economics. This project has been widely found to be almost without relevance to the provision of insight (see, e.g., Lawson, 1997, 2003). Yet throughout the international community of academic economists, the criteria used for academic appointments, promotions, publication, awarding prizes and general prestige turn almost solely on contributions to mathematical economic modelling. Because the project is explanatorily so unsuccessful, those with positions of relative power usually seek to maintain their positions by creating conditions that prevent alternative views even receiving a hearing.

        Given this context, it is difficult for any single department or faculty to change the way economics is done. If they seek to do so locally, students who are not trained in all the latest modelling techniques cannot go on to gain posts elsewhere and research undertaken is, because not mathematical, debarred from publication in journals regarded as core, and consequently funding is hard to come by; and so on.

        Nor, clearly, can the forces of this dogmatic obstacle to intellectuality be harnessed to achieve the latter. Some have tried. But this has always rested on a misanalysis of the problem. Many radicals, failing to see that the emphasis on modelling per se is the problem and instead supposing that the problem lies in the sorts of substantive assumptions made and/or conclusions drawn, do themselves advance the mathematical modelling project, albeit in ways regarded/presented as more radical, and thereby in fact sustain (indeed, become part of) the problem. (Lawson 2019, 249, n.17)

        Given this scenario, my own experience has been that the only way to avoid the relevant dogma, to create conditions of intellectual integrity, openness and criticality, is by way of participating in localised communities constructed for this purpose. This is how I have always interpreted the Cambridge Social Ontology Group, amongst other such collectivities. (Lawson 2019, 249-250, n.17, in The Nature of Social Reality)

        .
        Context counts. The Middle Ages overflowed with the numbers of dancing angels on the head of a pin …

  10. yoshinorishiozawa
    June 13, 2022 at 8:22 am

    Agenda for constructing evidence-based economics

    I almost agree with the first paragraph of Lars’s post above:

    Science is made possible by the fact that there are structures that are durable and independent of our knowledge or beliefs about them. There exists a reality beyond our theories and concepts of it. Contrary to positivism, yours truly would as a critical realist argue that the main task of science is not to detect event-regularities between observed facts, but rather to identify and explain the underlying structures/forces/powers/ mechanisms that produce the observed events.

    Micheal Joffe in the home page of his website evidence based economics proposes:

    Economics has been transformed in recent decades. Evidence is now abundant, resulting from the ever-increasing availability of datasets of diverse types, and improvements in econometric and statistical methods as well as in causal inference. Most academic studies now involve evidence although it is true that this is mainly confined to econometric and statistical evidence. Does this mean that economics is already, or is becoming, evidence-based?

    No, this is not happening in any systematic way -although there are some examples of good practice (see below). Increasingly, evidence is used as the basis of policy advice -although whether or not this is acted upon is a separate question. But economics, in the sense of providing an account of how the economy works, still has an uneasy relationship with evidence.

    It is my humble proposal that we should make a bridge between two positions (one of critical realists including Lars Syll, Tony Lawson, and Roy Bhaskhar and the other of evidence-based economics that Joffe proposes). This is not an easy work. There is no ready-made method in this work. As Bhaskhar put it, “science is work that requires creative intelligence” (Bhaskhar, A realist theory of science, Verso 2008, p.168). Abduction, if it is successful, is one of such methods or rather endeavors.

    The most important issue, or the basic issue, as Joffe put it, would be “where does theory come from?”. This “theory” must be different from its normal “usage in economics, where theory is taken to be a model, a collection of models, or a modelling approach.” We need a fundamental change of our perspective. A hint is given by Joffe:

    One fundamental barrier is that the habitual way of thinking shared by many economists, including heterodox ones, is that one cannot think seriously and systematically about any topic unless one has a model. … The basic elements of a science are accurate description and classification of phenomena, and identification of the causal processes that bring them about and maintain them, plus the way that these causes interrelate. It is a combination of empirical work and causal explanation, developed from an iterative process; explanations may be derived from generalizations directly based on the evidence, or they may involve an inspired imaginative leap that explains the empirical observations.

    Although there is no easy, ready-made, method to make a bridge between realist explanations and evidence, let us call for the moment evidence-based economics that tries to do so. Then, in addition to changes of perspective, we need a change of what we aim to explain. This is the question of agenda for building evidence-based economics.

    The agenda may be divided into two: one is a negative list and the other is a positive list.

    A negative list of the Agenda
    (1) Abandon macroeconomic forecasting. Let it be the business of forecasting organizations.
    (2) Abandon a closed complete explanation of an economy or an economic phenomenon.
    (3) Abandon Walrasian hypothesis that everything depends on everything.
    (4) Avoid choosing an explanation by normative evaluation. Avoid wishful thinking.
    (5) Acknowledge that a theory may not directly be applicable to policies.

    A positive list of the Agenda
    (1) Be content to find a short chain of close and strong causation.
    (2) Try to find new and various types of evidence.
    (3) Learn from history of economics and other sciences, because knowledge is produced by means of knowledge.
    (4) Accumulate various stylized facts and histories of how things became to take the present form.
    (5) Try to find or construct a coherent theory that is compatible with various kinds of facts and (accepted or acceptable) theories.
    (6) Compare the explanation with various other explanations that give the same effect.
    (7) Our account of how the economy works must be based on evidence.

    Both of these lists are tentative ones. First of all, I must explain what I mean in each item. But I avoid doing that, because my post is already sufficiently long.

    I welcome questions and comments both pros and cons on each item of the lists. I may add necessary explanations (reasons of why I included each of them and significance I expect from it). Someone may propose to add new items and some others may propose to eliminate some of present items.

    • Meta Capitalism
      June 13, 2022 at 4:43 pm

      Exhibit #1:

      [E]economic history do not help you to understand economics. They serve you as epistemological obstructions. Of course, you will not understand it as you never did. I finish my intervention here. (Shiozawa, RWER, Arrogant Conceit on Full Display, 12/28/2018)
      .
      It is not easy to understand qualitative change, but it is sometimes possible to understand qualitative change such as technological change only by a mathematical framework. … I want to know if you know any qualitative analysis or argument that is not mathematical and better than mine. These comments may be simply dominated by romanticism. (Shiozawa, RWER, Qualitative vs. Quantitative Change, 12/9/2021)
      .
      Another example of theory development based on systematic empirical work is a two-volume study of the growth of the modern state (Lindert, 2004). This describes the growth of the state qualitatively and quantitatively in each of the major countries that developed rapidly after the industrial revolution, together with an analysis of the causal factors in that country. It then provides an over-view of the forces behind state growth, while acknowledging the between-country heterogeneity. Thus, it encompasses description, generalisation and explanation, as well as the limits to generalisation imposed by factors specific to each country. This use of comparative economic history is a good model for developing theory, not least because it ensures that any explanation or suggested causal mechanism corresponds to the spatial and temporal patterns that actually occurred, as well as pay-ing attention to specific factors that may have been present in certain countries. (Joffe, 2017, 8)

    • Meta Capitalism
      June 13, 2022 at 6:42 pm

      Exhibit #2:

      That it [Sony premium and price setting] is so surprising [to Yoshinori] is indicative, though, of how rare it is for economists to talk with actual businesspeople. I used to work in venture capital and intellectual property law, as well, and I was always amazed at how alien economists’ descriptions of those fields seemed to me (not to say often outright ludicrous, especially when it comes to patents). A much more interdisciplinary and truly empirical/anthropological approach is needed if any reformulation of economics is to have any chance of describing the real world (other than performatively, i.e., where actors deliberately conform their behavior to economic theory). (A.J. Sutter, RWER, Interdisciplinary Approach, 12/17/2020)

      My point, with which I think the latter part of your comment may sympathize, is that economics must have a more anthropological element: study what it is that people actually do, instead of assuming what they do. Without rootedness in actual behavior, it’s all too easy to come up with a theory — but the theory will be useless as a description of the real world (again, performativity aside). E.g., it’s easy to come up with a theory of mechanics while ignoring friction …, but such a theory has very limited usefulness for life on Earth. (A.J. Sutter, RWER, Study Actual Behavior, 12/17/2020)

      Anthropology and economic history do not help you to understand economics. They serve you as epistemological obstructions. Of course, you will not understand it as you never did. I finish my intervention here. (Shiozawa, RWER, On Interdisciplinary Approach, 12/28/2018)

    • Meta Capitalism
      June 17, 2022 at 12:09 am

      The best source for an overview of Michael Joffe’s (2017) analysis of what evidence-based economics can aspire to be like is published on “Cogent Economics & Finance” as “Causal theories, models and evidence in economics—some reflections from the natural sciences.” I have read it carefully and it offers some good insights.

    • yoshinorishiozawa
      June 25, 2022 at 7:23 am

      The first point of my negative list requires an explanation, because macroeconomic forecasting is believed by majority of macroeconomists as the main objective of their research. However, the history of macroeconomics tells that many challenges were simply speaking a failure. Lawrence Klein (Nobel prize 1980) believed that we can get a better result if once we can increase the number of variables becomes bigger and cover major countries. This research program was a failure, because Klein and his group could not ameliorate their prediction by increasing the size (more than one thousand) of their model. New classical economists recommended a small model but the result was no better.

      It may be time to abandon this research program and divert our attention to other economic phenomena. Few efforts were paid to find steady relations between small number of more concrete variables for a small part of the economy. I know every thing is related to everything in the economy, but that does not exclude that we can find an underlying mechanism that governs the causality, but for a small part of the whole economy.

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