In mainstream economics, both logic and mathematics are used extensively. And most mainstream economists sure look upon themselves as “twice blessed.”
Is there any scientific ground for that blessedness? None whatsoever!
If scientific progress in economics lies in our ability to tell ‘better and better stories’ one would, of course, expect economics journals to be filled with articles supporting the stories with empirical evidence confirming the predictions. However, the journals still show a striking and embarrassing paucity of empirical studies that (try to) substantiate these predictive claims. Equally amazing is how little one has to say about the relationship between the model and real-world target systems. It is as though explicit discussion, argumentation, and justification on the subject aren’t considered to be required.
In mathematics and logic, the deductive-axiomatic method has worked just fine. But science is not mathematics or logic. Conflating those two domains of knowledge has been one of the most fundamental mistakes made in modern economics. Applying it to real-world open systems immediately proves it to be excessively narrow and hopelessly irrelevant. Both the confirmatory and explanatory ilk of hypothetico-deductive reasoning fails since there is no way you can relevantly analyze confirmation or explanation as a purely logical relation between hypothesis and evidence or between law-like rules and explananda. In science, we argue and try to substantiate our beliefs and hypotheses with reliable evidence. Propositional and predicate deductive logic, on the other hand, is not about reliability, but the validity of the conclusions given that the premises are true.
That logic should have been thus successful is an advantage which it owes entirely to its limitations, whereby it is justified in abstracting — indeed, it is under obligation to do so — from all objects of knowledge and their differences, leaving the understanding nothing to deal with save itself and its form. But for reason to enter on the sure path of science is, of course, much more difficult, since it has to deal not with itself alone but also with objects. Logic, therefore, as a propaedeutic, forms, as it were, only the vestibule of the sciences; and when we are concerned with specific modes of knowledge, while logic is indeed presupposed in any critical estimate of them, yet for the actual acquiring of them we have to look to the sciences properly so called, that is, to the objective sciences.
It’s worth mentioning that in logic, anything can be rigorously proven from a contradiction. This means that if even one of your assumptions is incorrect, you can appear to create valid logical proofs of anything you want. I suggest you closely examine the basic assumptions of conventional economics. I used to think some of them were wrong. I now think they are all wrong! They are never made explicit so you might have to dig around a bit to find them. This means that while economists’ conclusions may appear to be logically sound, there is no way to determine if they are correct or not. What a surprise!
A lot of economics is sterile because it is not sufficiently empirical. That seems undeniable. But how do you test propositions about, or models of, a complex system, be it whole economy, a sector, or some other set of interrelationships?
Back in the 1970s Herbert Simon pointed to a more empirical economics that observed the processes by which people formed expectations and how they dealt with uncertainty, either as members of an organisation or as autonomous agents. This pointed in a multi-disciplinary direction using results from cognitive psychology and exploring complex systems by computer simulation. This still seems the right way forward to me. But the economics establishment gave Simon a Nobel prize and then went back to armchair theorising. Armchair theorists like to have “results” or theorems. Therefore they favour models that are simple enough to have an equilibrium and that can be solved mathematically in order to produce a theorem – even if they require impossible assumptions. That also gives the academics something concrete to teach. It has taken economics down a rabbit hole into a wonderland more and more remote from reality.
Some simulation has shown that the robustness of the economic system does not depend on the sort of optimising behaviour that economists often suppose. Demand curves will slope down and markets can clear efficiently even if people follow simple rules of thumb. A sort of quasi stability is an emergent property of the system which is constantly evolving and never in a stable equilibrium.
You may have to ask different questions. Instead of trying to re-do the same old models in a slightly less ridiculous way, or trying to create a model of everything, look for the places where you can get some useful purchase. It’s what Keynes did when he took a macro approach. It’s what Steve Keen does. See the example of a boom and bust model in my book, Economy, Society, Nature – very simplified, but it does something that equilibrium models cannot do, namely an out-of-equilibrium crash.
The natural sciences did not start out with a theory of everything, they created useful models of parts of the observable world. Nor did they try to make models for the questions that preoccupied the Medieval world. Physics still has no theory of everything, relativity and quantum mechanics are incompatible – but very useful in their domain.
rsm
February 21, 2023 at 5:50 am
If scale matters that much, why do thermodynamic limits apply to anything outside of steam engines?
Quite so. All useful models are designed to answer a particular question or set of related questions. To be fair, even neo-classical economists don’t try to model everything, at least not all at once.
All theory also requires some abstraction so by definition there will be things it can’t address.
Keynesian income-expenditure models were widely regarded as “disproven” by the stagflation of the 1970s but those models had abstracted from changes in the terms of trade. Put in a massive deterioration in the terms of trade and an income expenditure model will generate stagflation easily enough.
Neo-classical models abstract from uncertainty and so misrepresent behaviour in a more general way. There is no quick fix for that. You have to start again.
It is relatively easy to construct a model which shows how some event can happen – illustrative modelling. It is of course much harder to construct an empirical model which successfully predicts when it will happen.
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It’s worth mentioning that in logic, anything can be rigorously proven from a contradiction. This means that if even one of your assumptions is incorrect, you can appear to create valid logical proofs of anything you want. I suggest you closely examine the basic assumptions of conventional economics. I used to think some of them were wrong. I now think they are all wrong! They are never made explicit so you might have to dig around a bit to find them. This means that while economists’ conclusions may appear to be logically sound, there is no way to determine if they are correct or not. What a surprise!
A lot of economics is sterile because it is not sufficiently empirical. That seems undeniable. But how do you test propositions about, or models of, a complex system, be it whole economy, a sector, or some other set of interrelationships?
Back in the 1970s Herbert Simon pointed to a more empirical economics that observed the processes by which people formed expectations and how they dealt with uncertainty, either as members of an organisation or as autonomous agents. This pointed in a multi-disciplinary direction using results from cognitive psychology and exploring complex systems by computer simulation. This still seems the right way forward to me. But the economics establishment gave Simon a Nobel prize and then went back to armchair theorising. Armchair theorists like to have “results” or theorems. Therefore they favour models that are simple enough to have an equilibrium and that can be solved mathematically in order to produce a theorem – even if they require impossible assumptions. That also gives the academics something concrete to teach. It has taken economics down a rabbit hole into a wonderland more and more remote from reality.
Some simulation has shown that the robustness of the economic system does not depend on the sort of optimising behaviour that economists often suppose. Demand curves will slope down and markets can clear efficiently even if people follow simple rules of thumb. A sort of quasi stability is an emergent property of the system which is constantly evolving and never in a stable equilibrium.
You may have to ask different questions. Instead of trying to re-do the same old models in a slightly less ridiculous way, or trying to create a model of everything, look for the places where you can get some useful purchase. It’s what Keynes did when he took a macro approach. It’s what Steve Keen does. See the example of a boom and bust model in my book, Economy, Society, Nature – very simplified, but it does something that equilibrium models cannot do, namely an out-of-equilibrium crash.
The natural sciences did not start out with a theory of everything, they created useful models of parts of the observable world. Nor did they try to make models for the questions that preoccupied the Medieval world. Physics still has no theory of everything, relativity and quantum mechanics are incompatible – but very useful in their domain.
If scale matters that much, why do thermodynamic limits apply to anything outside of steam engines?
Quite so. All useful models are designed to answer a particular question or set of related questions. To be fair, even neo-classical economists don’t try to model everything, at least not all at once.
All theory also requires some abstraction so by definition there will be things it can’t address.
Keynesian income-expenditure models were widely regarded as “disproven” by the stagflation of the 1970s but those models had abstracted from changes in the terms of trade. Put in a massive deterioration in the terms of trade and an income expenditure model will generate stagflation easily enough.
Neo-classical models abstract from uncertainty and so misrepresent behaviour in a more general way. There is no quick fix for that. You have to start again.
It is relatively easy to construct a model which shows how some event can happen – illustrative modelling. It is of course much harder to construct an empirical model which successfully predicts when it will happen.
economic thought is its history
But before something better comes along, this thinking is the best we have.