Monday, March 21, 2016

Waiting for a philosophy of economics

Noah Smith: One of the issues with economics is that there are ten million theories with no way to choose between them.

Jason Smith: I'd agree -- I think economics needs a framework to reject theories.

John Handley: So you're a Popperian?

Jason Smith: Not really. That falsification stuff is good in principle, but Popper believed general relativity falsified Newtonian gravity which is not a word I would use.

John Handley: But general relativity is the current fundamental theory of gravity, so Newton is false, right?

Jason Smith: Newtonian gravity is an effective theory of gravity for small field strengths. It gets most spacecraft where they're going. One of the few practical applications of general relativity is a small correction to GPS results due to satellites being a bit farther out in the gravitational field, changing the speed of their clocks relative to one on the ground.

John Handley: So it's not false?

Jason Smith: You could say it's false on galactic scales and near black holes. But really, a physicist would just say that's outside the theory's domain of validty. Relativity represented a paradigm shift in how we looked at Newton.

John Handley: Paradigm shifts and theory rejection ... you're a postpositivist. Empirical evidence in favor of a hypothesis is irrelevant and falsification is all that matters.

Jason Smith: Maybe for the current state of economics, but that's not an absolute. In physics, what's needed are more experiments and more theories. Theory rejection isn't a problem in physics since there aren't ten million theories -- there's only one.

John Handley: So postpositivism is just your philosophy of economics ...

Jason Smith: I offer a lot of empirical evidence in favor of the information transfer models on my blog. Theory rejection is important, but so is theory validation. Economics seems to have a problem with rejection, not with validation -- all kinds of models are consistent with the data.

John Handley: You don't seem to have a proper philosophy of science.

Jason Smith: It seems like a lot of the philosophy of science is done by people who aren't scientists. Why do they take it up?

Alexander Nehamas: I will tell you why I became a philosopher. I became a philosopher because I wanted to be able to talk about many, many things, ideally with knowledge, but sometimes not quite the amount of knowledge that I would need if I were to be a specialist in them.

Jason Smith: That explains a lot.

John Handley: Then what is your philosophy of economics?

Jason Smith: I'd say it's more of a pragmatic empiricism.

John Handley: I don't think that word means what you think it means.

Jason Smith: Oh, no. I've stumbled into more philosophy. What word?

John Handley: Empiricism.

Jason Smith: Why?

John Handley: Empiricism is most closely associated with Hume and, while it serves as the backdrop for newer philosophy of science, is neither new nor worthy of attention when considering a new philosophy of economics. Empiricism is an epistemology that elevates experience over a priori deductions.

Jason Smith: No! That is exactly what I mean!

John Handley: You can't be serious.

Jason Smith: I'd update personal experience a bit for the information age, but you shouldn't believe anything in economics unless you've run the regressions yourself. In the age of FRED, all of the data is a few clicks away.

John Handley: But that's old-fashioned age of Enlightenment stuff.

Jason Smith: Yes, but that's where economics is! It's hard to see with all the sophisticated math developed for physics and the modern data aesthetics, but deep down economics is a field without a Newton.

Noah Smith: There are lots of empirical successes in economics.

Jason Smith: Yes, and there were lots of empirical successes in physics before Newton. That's what Newton did -- couched the empirical successes in a theoretical framework.

S: Couched.

Jason Smith: Couched.

S: Tomatoed. Are you done blogging?

Jason Smith: Almost, sweetie.

S: When you're done, can I play Goat Simulator?

Jason Smith: Of course .... And done.




I forgot to add this somehow relevant picture (in my mind) from the Galileo museum ... Geocentrism had cooler models ...


  1. You might start with Joan Robinson's lucid comment in the conclusion to her book "Economic Philosophy":

    It is possible to defend our economic system on the ground that, patched up with Keynesian correctives, it is, as he put it, the 'best in sight'. Or at any rate that it is not too bad, and change is painful. In short, that our system is the best system that we have got.

    Or it is possible to take the tough-minded line that Schumpeter derived from Marx. The system is cruel, unjust, turbulent, but it does deliver the goods, and, damn it all, it's the goods that you want.

    Or, conceding its defects, to defend it on political grounds - that democracy as we know it could not have grown up under any other system and cannot survive without it.

    What is not possible, at this time of day, is to defend it, in the neo-classical style, as a delicate self-regulating mechanism, that has only to be left to itself to produce the greatest satisfaction for all."

    She does not go far enough: though she inspired, and learned from, neo-Chartalists, not least Lerner, the truth is that any philosophy of economics must start with an accurate account of monetary operations, and that means making all one's macroeconomics consistent with the best descriptions of these operations, i.e. the account given by the best Modern Monetary Theorists, such as Bill Mitchell, Randall Wray, Stephanie Kelton, and their heterodox allies, such as Marc Lavoie. All the rest in nonsense.

    1. I still haven't figured out why Lavoie (and Godley) assume the velocity of high powered money is 1 in units of the time step of the model.

  2. Jason, if I ever have the honor of being in one of your plays, can I be "Sir Derpsalot" or "McDunning-Kuger?"

    1. That would make me one of the guys in the peanut gallery making occasional snide comments and jokes...

    2. I dub thee Sir Derpsalot Baron McDunning-Kruger III, Esq.

      They could only be funnier than my jokes (q.v.).

  3. "I offer a lot of empirical evidence in favor of the information transfer models on my blog. Theory rejection is important, but so is theory validation. Economics seems to have a problem with rejection, not with validation -- all kinds of models are consistent with the data."

    So now that we've all established your eclecticism (yes, there's even a label for label evaders), how do you propose we get around the induction problem with the ITM? Or, why is validation important if you have rejection? Validation seems to be redundant once we've gone about failing to falsify something (I mean, they're pretty much the exact same thing, except that you go about the latter in a different, induction-problem-proof way)...

    1. I'd also like to add that describing yourself as an empiricist says nothing about how you actually think science should be done -- this is why specifying a philosophy of science beyond 'empiricism' is important.

      I'm an empiricist, but I don't agree with you about the degree of helpfulness that empirical evidence can bring to economics. I'm like one of Noah's examples: "you can be a pure theorist and still subscribe to empiricism - you just don't believe in theories until they've been successfully tested against data"

      In this sense, my philosophy of economics is far different from my epistemology and my philosophy of science in general, which is basically postpositivist outside of social science.

    2. Ah, the induction problem. I'm not entirely sure how I deal with it on a day to day basis. As I type out each letter and character of this sentence, I am relying on the uniformity of nature to believe the next lett

    3. Kidding.

      But generally, things work until they fail. Then that becomes an interesting scientific question: Why did it work before? Why did it fail now?

      I like both validation and rejection because both serve the pragmatic reasons to do theory: does the theory work and does it produce useful results?

      Rejection tells you it doesn't produce useful results.
      Validation can tell you how useful.

      The ITM can seem to get average inflation right on average to within a percentage point about a couple years out. If it is wrong, it is because a recession intervened (that could be a definition of a recession in the IT framework). Is this useful? I don't know -- I'd need to know the requirements of users of forecast data ... but validation can give metrics that can be translated into usefulness.

  4. Jason,

    a "pragmatic empiricism" is too broad to be considered a philosophy of science. Practically ever 20th century scientist was an empiricist, and pragmatism coupled itself with said audience and is a more general term that is used in plenty of other philosophies, not just those of science (language, epistemology, and meaning to name a few). Both Quine and Carnap were empiricists and very "pragmatic," but they couldn't have differed more in their views of science, especially the Vienna Circle's brainchild: logical positivism.

    I'd like to corroborate what John has said; empiricism is not sufficient to be called a philosophy of science. It's an epistemological framework that has existed since the 18th century that only teaches on the origins, whereabouts, and attainment of knowledge; all scientists should already be empiricists.

    I'm no economist or scientist, nor am I particularly interested in those subjects, but I do know that this "pragmatic empiricism" is too general and too vague to be called a philosophy of science. Consider doing more research or expounding on your philosophical position.

    1. Per John Handley above, almost no 20th century scientists were empiricists since that philosophy is about personal experience. As a theoretical physicist, I never collected data myself. We try to make students into empiricists with lab courses in college. I did build experiments to measure Berry's phase and the Josephson effect myself. But I don't believe in those things more than others (e.g. special relativity).

      The pragmatism isn't just about what can be measured, but what can be used. If a theory can't be rejected, it still might not be useful for practical purposes.

      I agree what I say is too ill-defined to be a true philosophy of science! Hence the reference to Waiting for Godot in the title ... waiting, possibly forever.

    2. "Per John Handley above, almost no 20th century scientists were empiricists since that philosophy is about personal experience."

      I'm going to have to disagree. While Hume does literally say "experience" in, e.g., An Enquiry Concerning Human Understanding, it is fairly clear that Empiricism generally applies to 'experience' in a more general sense; namely, things that are observed.

      The way that we observe things doesn't matter so long as the observations are sufficiently accurate and precise.

    3. Jason, when empiricists use the word "experience," they refer to observation, not some phenomenological shred. John is correct; the empiricist principle only says that knowledge is ultimately gained (if it can be at all) through the senses. It's about what is observable, not subjective experience. Thus practically every 20th century scientist interested in philosophy were empiricists.

      As for pragmatism, what you say is common for plenty of derivations and alterations of pragmatism, anyway. Like its name suggests, it purports usefulness. It just greatly appreciates measurability as a side effect.

  5. "Or, conceding its defects, to defend it on political grounds - that democracy as we know it could not have grown up under any other system and cannot survive without it."

    The word "democracy" comes from the Greek, as in over two thousand years ago, long before capitalism.

    That doesn't speak well of Robinson's knowledge of history or of democracy (not to mention philosophy or science). One should hope at least her readers would have known better, before advancing her as an example.

    Harry Mann

    1. She did win the Cambridge Capital Controversy, though!

      ... although Noah Smith recently called her argument facile.

    2. Maybe so.

      Charles Darwin was the greatest biologist; that doesn't qualify him as a physicist.

      Technical knowledge of her subject makes of her -- at best -- a good economist, not a good philosopher.


  6. O/T: Jason, have you ever actually read one of MF's comments? I read these [1] [2] [3] [4] in which he discusses science, and wondered how you might respond (not that I'm asking you to... it's almost certainly a fruitless exercise).