Category Archives: Economic education and methods

We’re all normative sociologists now

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Commenting on a paper that looked at clusters of citations in economics research and found evidence of ideological tribalism, Tyler Cowen writes,

Berkeley and MIT have the saltiest taste, while Minnesota and Rochester are the freshest of the fresh. Chicago has a more neutral set of citation practices than many economists (not I) might think. Chicago cites saltwater school papers at a higher rate than the general average, nonetheless Chicago ends up strongly in the freshwater camp because it is cited so much by other freshwater schools, and not so much by the saltwater schools. A cynic might wonder if the Chicago economists are more open-minded than their critics, and I must confess that is consistent with my own anecdotal experience.

Robert Nozick once wrote of

Normative sociology, the study of what the causes of problems ought to be

In my new book, without using the term normative sociology, I give the example of different views of the cause of lower average wages for women. Using Nozick’s formulation, sociologists study gender bias and power, which they believe should cause the problem. Economists study human capital and lifestyle choice, which they believe should cause the problem.

In the book, I claim that economics is not a science. The usual narrative for scientific progress is that someone observes a phenomenon, comes up with an insight to try to explain it, turns that insight into a testable hypothesis, and tests the hypothesis. The problem in the disciplines that study social phenomena is that hypothesis tests never seem to be definitive, for familiar reasons, some of which are stated in the book.

In the book, I say that economists create interpretive frameworks, and that we have a hard time choosing from among different frameworks. Thinking about it further, I would say that in the absence of definitive empirical testing, economists are tempted to champion frameworks that focus on what they think the cause of a problem ought to be. If you’re pro-market, you think that the cause of the crisis of 2008 ought to be Fed misbehavior or housing policy. If you’re pro-government, you think that the cause of the crisis ought to be deregulation.

Of course, the best thing to do would be to come up with something better than normative sociology. Meanwhile, however, I think it would be better if we were to admit that is what we are doing. I we did, then I think we would be better off than we are now, when we think that we are applying scientific standards. Believing that science is possible leads to a mindset that thinks, “I’m doing science. Those guys are just investigating what they think ought to be the causes of the problem.”

Timothy Taylor on Economic Epistemology

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He writes,

There’s a widespread quick-and-dirty version of the relationship between theory and empiricism in economics, which is that one first creates theories, tests those theories with data, and then iterates with new theories and empirical tests. But in the 21st century, I’m not sure anyone really believes this. It’s well-known that you can create an internally consistent theory to reach pretty much any conclusion you want, as long as you tinker with the underlying assumptions. Moreover, it’s well-known that when doing empirical work, one can try out a bunch of different statistical tests until you find one that reaches the conclusion you want. To make matters worse, there’s no particular reason to believe that if some particular economic theory is validated by some particular empirical estimate in one context that it will also hold true in all other times and places. These concerns prove the case that a social science is not a natural science, but it would be as severe overreaction to hype them up into a claim that social sciences can’t lead to meaningful knowledge.

In my new book, I argue that economics is not a science. I say that we deal primarily in non-falsifiable frameworks of interpretation, rather than non-falsifiable hypotheses. Taylor’s comments speak to some of the reasons that this is the case.

The problem becomes how to evaluate competing frameworks if scientific epistemology (i.e., falsificationism) does not apply. Taylor is discussing essays by Harrod and Keynes, who, each in his own way, seems to argue for an “I’ll know it when I see it” approach to evaluation. However, I think we should try harder to spell out the criteria that are most helpful.

The New Consensus on Macroeconomics

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Noah Smith writes,

Assuming Wolfers and DeLong and I aren’t just blowing smoke out of our rear ends, and DSGE models really don’t work, why do so many macroeconomists spend so much time on them?

Pointer from Mark Thoma. Smith refers to Brad DeLong’s post, in which he writes,

DSGE macro–has indeed proven a degenerating research program and a catastrophic failure: thirty years of work have produced no tools for useful forecasting or policy analysis.

As for Noah’s possible explanations for how the profession got into that cul de sac, and why it remains there, I vote for a combination. I endorse the following snippets of his post:

Maybe since macro data is very uninformative, no one actually knows what good research looks like, so they all settle on some random thing

In my new book, I say that economists in general, and macroeconomists in particular, deal in interpretive frameworks rather than in testable hypotheses.

it’s just fun for some people to do

I always suspected that Stan Fischer and Olivier Blanchard liked their preferred models because they found the math fun. They found it even more fun when they could see that other people had trouble following the math.

if the prevailing research paradigm is not really better than alternatives, then you probably want macroeconomists who are willing to “play the game”, as it were. So DSGE might be an expensive way of proving that you’re willing to spend a lot of time and effort doing silly stuff that the profession tells you to do.

Sad, but true.

I see this as vindication. During the thirty years that I abandoned interest in academic macroeconomics, I missed nothing. It was not me that was being obtuse. It was the profession.

You can now read my latest book!

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This link goes to the Kindle version, which will set you back $4 (or is it free?), plus your time. Paperback version will be available soon.

As of this moment, the Amazon site calls me the “editor” of the book rather than the author. That will be corrected eventually.

The main point of the book is that you need to keep in mind the overwhelming complexity of specialization in a modern economy. Non-economists miss it when they use simple intuition. And academic economists tend to miss it when they build their “models,” particularly of the GDP factory.

Any reader of this blog will be able to follow the book. But what I really want is for everyone who is about to start graduate school in economics to read this book. I want to say to such students, “Don’t get too suckered in by what your professors are going to be showing you about how to do economics. Don’t let them lead you to forget about specialization and trade.”

Epistemology and Economics

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I am starting to read up on the topic. I see epistemology as the attempt to articulate what criteria we are using to evaluate the usefulness of economic analysis. Various initial thoughts:

1. I emailed Pete Boettke for advice on what to read to get me started on the topic, and not surprisingly he had useful suggestions. I told him that I of course know about Milton Friedman’s classic position.

2. One can argue that there is no need for epistemology. You could just assume that good economics is what leading economists do. Without having to articulate what they do, just try to do things similarly. However, for someone like myself, who is inclined toward heterodoxy and to doubt that leading economists are doing useful economic analysis, that is not the right answer.

3. One of the articles that Boettke suggested was by Dan Hausman, who wrote

Instead of attempting to discover what methodology neoclassical economists actually practice and to think seriously about how that methodology might be justified, … critics … have usually relied on indefensible philosophical theories of science to support broad condemnations. … Philosophers have, however, little to offer by way of informative well-supported systematic theories of the scientific enterprise and that little does not lend itself to mechanical application.

In other words, if you have a problem with how economists are doing things, that is your problem, not the economists’. Those who can, do, and those who can’t, do epistemology.

To put it another way, I read Hausman as saying that the task of the epistemologist is to figure out what economists do and then justify it. Again, from where I sit as a heterodox economist, this is hardly satisfactory.

What I contend in my forthcoming book is that economic theories are interpretive frameworks. These cannot be tested decisively. They are not falsifiable in the Popperian sense. Think of AS-AD. There is no combination of output and price movements that can falsify it. If they move together, you call it a demand shock. If they move in opposite directions, you call it a supply shock.

What I do not address in the book is the question of how best to evaluate competing interpretive frameworks. I believe that it is an important question. I am not convinced that the best way to answer to the question is to study how frameworks become popular in the profession. I think that factors such as path dependence (model X got published in a good journal, so something that pertains to model X can also get published in a good journal) and ideological preference play outsized roles in such evaluations in practice.

Somewhat related: Noah Smith on objectivity and economics. Pointer from Mark Thoma.

Axel Leijonhufvud vs. MIT Economics

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He writes,

For concreteness, think of a controlled experiment in a natural science as an example of a closed system. The conditions of an experiment controlled in this sense are never met or approximated in macroeconomics. (Adding more variables to the right handside of our regression equations will never get us there). But in constructing intertemporal models – such as in DSGE – we insist on the make-believe that the macroeconomy is a closed system

Link found here, thanks to a pointer from Mark Thoma.

Leijonhufvud was an early influence on me, and I still feel a strong affinity towards him.

Economic Experts vs. the Public

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Noah Smith writes,

the economists were more likely than the public to support the U.S. auto bailouts, by 58.6 percent to 52 percent. They were also more likely to support President Barack Obama’s economic stimulus bill, by 52.8 percent to 43.4 percent. More economists — over 97 percent — were in favor of tax hikes, and fewer supported school-voucher programs.

Pointer from Mark Thoma.

The paper to which Smith refers, by Sapienza and Zingales, is complex, so do not take either Smith’s or my word for what it says. From their conclusion:

This difference does not seem to be justified by a superior knowledge of economists, but by a different way average Americans interpret the questions. Economists answer them literally and take for granted that all the embedded assumptions are true, average Americans do not.

…Hopefully, the same economists, when they do policy advice, would answer the same questions very differently. Otherwise, we would have to conclude with William F. Buckley, Jr. that “I’d rather entrust the government of the United States to the first 400 people listed in the Boston telephone directory than to the faculty of Harvard University.”

As to Smith’s larger point, that economists are becoming more interventionist, I would be curious as to how much more interventionist. As long as I can remember, many economists and nearly all economic textbooks have been interventionist. Going back to 1971, whose idea was it to try to control inflation with wage-price controls?

Given the general drift to the left in academia, it would not surprise me if economists are more interventionist today than they were 30 years ago. But I would like to see some careful study to show that, not just casual empiricism.

Quantifying Consumers’ Surplus

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Tim Kane writes,

Simply put, the WTA value of modern things is vastly higher than older, more tangible, more commoditized goods. I have conducted some preliminary, not-ready-for-peer-review research and discovered a huge gap differential

WTA stands for “willingness to accept,” as in how much money would you be willing to accept to have only the medical care available in 1970? As Kane points out, measuring this is very important if we are going to make well-grounded statements about how economic welfare is distributed and how it is changing over time.

Unfortunately, this research probably will not definitively answer the question of whether there were more welfare gains in 1900-1950 than in 1965-2015. We cannot go back and find the WTAs for automobiles and air travel back then.

The Gatekeeping Function in Research

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Ronald Bailey writes,

The current peer review process serves as both gatekeeper and evaluator. Post-publication review would separate these functions by letting the author decide when to publish. “Making publication trivial would foster a stronger recognition that study results are tentative and counter the prevalent and often wrong view that whatever is published is true,” Nosek explains. Another big benefit, as Nosek and his colleagues argued in 2012, is that “the priorities in the peer review process would shift from assessing whether the manuscript should be published to whether the ideas should be taken seriously and how they can be improved.” This change would also remove a major barrier to publishing replications, since novelty-seeking journal editors would no longer serve as naysaying gatekeepers. Ultimately, Nosek would like the OSF to evolve into something like a gigantic open-source version of arXive for all scientific research.

Think of letting blogs can do the job of editors and peer reviewers.

Liberty, Conformity, and Academic Diversity

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Miles Kimball writes,

John Stuart Mill argued that protecting civil liberty is not enough; social liberty must also be protected. It is possible to force most people into conformity with prevailing opinion by criticism, disapproving glances, and mockery of nonconformity.

Pointer from Tyler Cowen.

I am afraid that this is the price that we pay for living in society. Any cohesive society will reward cooperators and punish defectors. Social sanctions are going to be part of that.

To put this another way, I would argue that conformity is usually good and nonconformity is often bad. Yes, we want our society to accept some nonconformity. However, I believe that those who profess to want to live in a society with a much higher tolerance for nonconformity are probably kidding themselves. Note that in the 1960s how quickly the expressions of non-conformity (long hair, etc.) came to be themselves enforced by standards of conformity.

In another interesting paragraph, Kimball writes,

As an academic, I notice how powerfully the opinion of other economists–whether right or wrong–operates in controlling the behavior and the research priorities of the typical academic. It is hard to think of many people who could be more safe from harsh practical consequences for a dissenting opinion than tenured professors, yet most still meekly follow the opinion of the crowd within their discipline. Is this the way it should be? Is this the way to best advance science? I don’t think so. Surely, a bit greater variance in expressed opinion would be more productive of scientific progress than the degree of conformity that prevails within most scientific disciplines, including economics.

My comments.

1. Do you remember what Paul Romer said?

The only way I can see to protect scientific discourse is to limit entry into the discussions of science.

2. If you are looking for an optimum degree of tolerance for divergent ideas, I do not think you will find it at either 0 percent of 100 percent. I do think that right now in economics, the tolerance for divergent ideas is too low. However, it is better than it was 30 years ago.