Wednesday, December 20, 2017

18 signs you are not having a productive conversation about economics

Inspired by Beatrice Cherrier's tweet thread containing both Chris Auld's "18 signs you’re reading bad criticism of economics" and UnlearningEcon's "18 Signs Economists Haven’t the Foggiest", I'd like to present my "18 signs you are not having a productive conversation about economics":

  1. Contains any discussion about the usefulness or lack of usefulness of mathematics that does not reference empirical data
  2. Makes claims about assumptions' realism or lack thereof without reference to empirical data
  3. Contains any reference to "all models are false", pro or con
  4. The cause of recessions is assumed or claimed to be known
  5. Elides the difference between macro- and micro-economics
  6. Uses the elision of macro and micro-economics as an argument against a critique of economics or ignores the fact that most people think of macroeconomics when they think of "economics" in their daily lives
  7. Places any significant meaning on the words "neoclassical", "neoliberal", or "mainstream" except as a historian of economic thought or via citing one
  8. Assumes accurate forecasting is the only use of macroeconomic theory
  9. Insinuates inaccurate forecasting is not a problem for macroeconomic theory
  10. Ignores the fact that existing DSGE models are no better than simple regressions or stochastic processes for forecasting
  11. Ignores the fact that the finite difference equations used in the DSGE framework are sufficiently general so as to encompass nearly any dynamic model
  12. Uses the existence of autoregressive models, use of microeconomic data, or estimating parameters of structural models to argue that macroeconomics is sufficiently empirical
  13. Elides the difference between "not rejected" and "useful"
  14. Elides the difference between academic and popular economics  
  15. Uses the elision of the difference between academic and popular economics as an argument against a critique of economics 
  16. Makes a claim about the history of economic thought without referencing a historian of economic thought
  17. The cause of inflation is assumed or claimed to be known
  18. Mentions "money", or critiques a mention of "money" by asking what is meant by "money"


10 comments:

  1. Well I learned a new word: elide/elides/elision. =)

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    1. In writing this, I think eliding things and focusing too much on eliding are two of the big impasses to productive conversation.

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    2. Now that I think about it, I have previously encountered the "elision" version of the word ... in French class!

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  2. I’m not a fan of this type of list. IMHO any list of technical issues misconstrues the main problem in economics. The real problem is cultural. The thing we call “mainstream” economics is a very narrow, white, middle-aged, male, English-speaking, (mostly) North American, academic economics.

    You can see what is wrong by looking at the things it ignores and the things it assumes.

    Amongst the things it appears to ignore are:

    The impact of the economy on the environment
    The role of women in the economy
    The knowledge of practitioners in the economy e.g. business, finance
    The knowledge of academics in the non-English speaking world e.g. what are the leading economic ideas amongst Chinese academics?

    Amongst the things it appears to assume are:

    There is one “correct” way of modelling the economy and that involves a representative agent
    Inequality doesn’t matter (as the representative agent can’t be unequal to himself)
    Private sector debt doesn’t matter (as the representative agent can’t owe himself money)
    The operational realities of the economy don’t matter e.g. accounting, money, finance, business
    Elected governments can’t be trusted to run the economy “correctly”
    There is a black and white answer to every complex issue
    Economics is science because academic economists are scientists, and academic economists are scientists because economics is science
    Competitive markets are good for everyone else – but academic economists prefer lifetime tenure for themselves.

    In the mainstream versus heterodox debates, I usually side with the heterodox because at least they recognise these problems, even if they don’t have any answers. Unfortunately, as you have said, the heterodox economists often make the opposite mistake from the mainstream e.g. rather than assume that inequality doesn’t matter, they merely assume that it does matter.

    On a more positive point, you mentioned Hilbert in one of your recent posts. I don’t know much about him except that he challenged mathematicians to solve 23 difficult problems. This seems to have provided a focus for mathematicians. I wonder what an economics equivalent of Hilbert’s problems would look like. What are the 20-25 most difficult real-world problems in economics e.g. what exactly is hyper-inflation; what are the precise conditions when it does or does not occur; how can we manage the associated risks? Inward-looking methodological questions would not be allowed.

    A starter list might be obtained by reading Noah Smith articles in Bloomberg, many of which have the structure:

    X is a major problem in economics
    Economists don’t know what causes X
    Economists don’t know how to cure X
    No-one has a plan to change this situation.

    It’s difficult not to laugh.

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    1. Let me just take your first "problematic assumption":

      There is one “correct” way of modelling the economy and that involves a representative agent

      The only way you know that this is a problem is if you are able to produce some kind of heterogeneous agent model that is empirically successful. Until then, unless you have somehow exhaustively tested every possible representative agent model, or proven some kind of no-go theorem (the SMD theorem can be considered a kind of no-go theorem) about representative agents, your problem with representative agents is a methodological opinion.

      No methodological opinion about theory is ever validated unless it leads to an empirical success. I like to bring up the aether in cases like this. It seemed ridiculous for light to be waves in nothing to many 19th century physicists, but they are in fact waves in nothing. Representative agents may be prima facie ridiculous, but who knows if the final description of macroeconomics isn't isomorphic to some representative agent model (in fact, I think any macro theory can be at least approximated by some representative agent model if only because "representative agent model" isn't actually that restrictive of a constraint).

      Similarly, inequality may well have macroeconomic effects, but until you have an empirically successful macro theory where inequality causes something specific to happen this is just another methodological opinion.

      I am not passing judgment on whether inequality is a moral problem -- inequality may not have an effect on GDP growth, but it can simultaneously be an immoral state of a society. Depending on economic theory to come up with results that back up moral claims I think debases those moral claims. What if an empirically accurate theory arises that says inequality is actually a benefit to GDP growth? Well, you can't just say "it doesn't matter what economics says about inequality" when you just said that "economics makes the problematic assumption that inequality doesn't matter". I say stick to inequality being a moral problem first. Lots of products create immoral social problems. But if I decided on using economic theory as the argument against it, I've ceded the moral argument. Guns cause lots of deaths in the US, but stronger regulation would probably hurt the thousands of small business gun shops and reduce employment plus enforcement costs. We should still regulate guns regardless of the economic arguments against it.

      I read somewhere that a good definition of "neoliberal" was the replacement of the social justification for policies with the economic justification of policies. In that sense, relying on economics to tell us that inequality is bad for growth is neoliberalism. We should look to ethical theory to figure out what is bad or good for society, not economic theory.

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  3. Your response doesn’t seem to reflect my comment or at least what I intended as my comment.

    Jason: “Let me just take your first "problematic ASSUMPTION” … The only way you KNOW that this is a problem is …” (my emphasis)

    Assumptions are not things we know. They are things we assume. If we knew something we would be dealing with facts or logical proofs or something similar.

    We all make assumptions. You want to argue that you can make any assumption and that I must accept your assumption unless I can prove it false. On the other hand, I must prove my alternative assumption to be true before you will accept it as my assumption. No.

    Jason: “unless you have somehow exhaustively tested every possible representative agent model … your problem with representative agents is a methodological opinion”

    My comment is not about MY assumptions. It is about mainstream economists’ assumptions. They say that, as they are pursuing a certain type of model, no-one else can be taken seriously if they pursue another type of model.

    It is impossible to prove that no-one in future will not be able to produce a useful model, so you are saying that we can never challenge any economists’ assumptions even if they never lead to a useful model. No. That’s religion.

    Your entire blog is challenging the assumption that the modelling approach adopted by mainstream economists does not work, so you seem to be applying one rule to yourself and another to me – although you are also misreading my comment here.

    Jason: “until you have an empirically successful macro theory where inequality causes something specific to happen this is just another methodological opinion”

    History shows us that inequality leads to civil unrest and revolution. The problem here is that you seem to think we should accept evidence only if it comes from a mathematical model of which you approve. You seem to assume that, as history is not science, we should ignore it. No.

    This is one of your biggest failings. For example, you sometimes say that economic institutions do not matter. However, history tells us that Europe split itself in two for most of the second half of the 20th Century. The two sides employed very different institutions – with very unequal outcomes. The people in the East saw that they were poorer than the people in the West, so they rose up and said “Enough”!

    In the current decade, we see people from the poorer countries in North Africa crossing the Mediterranean to try to obtain a better standard of living for themselves. They do this even though they know that many will perish on the journey.

    I would have thought that these actions are evidence that entropy will overcome artificial inequality barriers – like different pressures equalising in physics.

    Jason: “What if an empirically accurate theory arises that says inequality is actually a benefit to GDP growth”

    In order to know that inequality benefits GDP growth, we would need to study the impact of inequality on GDP growth. For some reason, you seem to be against this. It is perfectly possible to study inequality without immediately jumping to political conclusions. I agree that many economists do not separate these two steps but that does not mean that we can’t or shouldn’t study inequality.

    Also, who says that the pursuit GDP growth is the only thing that matters in economics? That is itself an assumption. Climate change is a direct consequence of the pursuit of GDP growth without questioning if it might have adverse consequences.

    (Cont’d)

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    1. "Assumptions are not things we know. They are things we assume. If we knew something we would be dealing with facts or logical proofs or something similar."

      Yes, so the only an assumption can be "problematic" is if we know something. As I said, therefore the only way we can know if the representative agent assumption in macroeconomic is "problematic" is if we know a good empirical description of macroeconomic data that is inconsistent with the representative agent assumption. There are *no* good empirical descriptions of macroeconomic data, therefore we cannot know if the representative agent assumption is problematic.


      History shows us that inequality leads to civil unrest and revolution. The problem here is that you seem to think we should accept evidence only if it comes from a mathematical model of which you approve. You seem to assume that, as history is not science, we should ignore it. No.

      I never said we should ignore it. Not assuming inequality leads to low economic growth is not the same thing as testing an hypothesis about whether inequality leads to economic growth.

      There is a massive difference between declaring inequality is bad for the economy and finding out the effect of inequality on the economy.

      "Also, who says that the pursuit GDP growth is the only thing that matters in economics?"

      I completely agree with this. In fact, I've said that measuring human welfare in terms of GDP is probably the best definition of "neoliberalism".

      But then economics as a science should study what GDP measures, what factors influence its growth rate, and what it is correlated with. Whether GDP growth should be higher or lower is not really an economic science question. This is akin to saying the structure and reactions of nuclei is nuclear physics (science), but whether nuclear power is better for the climate is not a scientific question.

      But I think you've misunderstood my original point. A claim being made by pro-egalitarians (I'd count myself as one) is that inequality is bad for GDP growth. This may or may not be true (given our understanding of any of the factors leading to GDP growth, I'd say this is highly uncertain), so assuming it to be true hurts the credibility of pro-egalitarian economists.

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  4. I find it extremely odd that you seem to regard every right-wing assumption in economics to be science but every left-wing assumption to be bias.

    Your whole approach assumes that the macroeconomy is too complex for us to understand the impact of specific events. The problem with that is that all economic policies are amongst the events you assume we can’t understand. Later, you then conclude that we can’t determine the impact of specific economic policies. However, that’s just reflecting your original assumption.

    Your view appears to be more and more like a mathematical version of Austrian economics. The only thing that matters is rational people and markets. The macroeconomy is too complex for us to understand, so governments do as much harm as good.

    There is no such thing as apolitical economics. That’s why it is much more difficult than physics, and why we must use different perspectives to help us avoid fooling ourselves into believing that our assumptions are facts.

    Here’s JM Keynes:

    “Professor [Max] Planck, of Berlin, the famous originator of the Quantum Theory, once remarked to me that in early life he had thought of studying economics, but had found it too difficult! Professor Planck could easily master the whole corpus of mathematical economics in a few days. He did not mean that! But the amalgam of logic and intuition and the wide knowledge of facts, most of which are not precise, which is required for economic interpretation in its highest form is, quite truly, overwhelmingly difficult for those whose gift mainly consists in the power to imagine and pursue to their furthest points the implications and prior conditions of comparatively simple facts which are known with a high degree of precision”

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    1. "I find it extremely odd that you seem to regard every right-wing assumption in economics to be science but every left-wing assumption to be bias."

      This might be a result of missing some posts. My entire blog could be considered an attack on the right-wing assumptions that individual humans are rational utility maximizes, that prices reflect aggregated information, and that rational expectations (as implemented) are anything but nonsense.

      But my blog is also an attempt to confront the sheer amount of unscientific methodologies that represent a barrier to knowledge regardless of whether it comes from the left or the right. One of those is enforcing bias towards one model when there is no empirical evidence for that model.

      "Your whole approach assumes that the macroeconomy is too complex for us to understand the impact of specific events. ... Your view appears to be more and more like a mathematical version of Austrian economics. The only thing that matters is rational people and markets. The macroeconomy is too complex for us to understand, so governments do as much harm as good. "

      Not really. It's that individual human behavior is too complex to understand. I commonly explicitly assume human behavior is random (the exact opposite of rational).

      I do occasionally also find that specific events (like tax changes, elections, and other policy changes) do not have an effect on the macroeconomy. And because of findings like that, I tend to take a dim nihilistic view about our effect (for good or ill) on macroeconomic measures.

      In some sense, the theory I am developing here could be said to motivate a theory where we can't impact macro measures therefore all political actions should be taken from moral considerations, not economic. This is also the same place you would start from if you knew nothing about the macroeconomy. It has been erroneous assumptions and bad models about the macroeconomy presented with undue conviction that got us to where we are today.

      But overall, I think you have misread quite a bit of what I have said if you think I in any way endorse the idea that "The only thing that matters is rational people and markets."

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  5. Jason: “the only way we can know if the representative agent assumption in macroeconomic is "problematic" is if we know a good empirical description of macroeconomic data that is inconsistent with the representative agent assumption. There are *no* good empirical descriptions of macroeconomic data, therefore we cannot know if the representative agent assumption is problematic”

    Jason: “It has been erroneous assumptions and bad models about the macroeconomy presented with undue conviction that got us to where we are today”

    These points contradict each other. You don’t like me or others speculating about whether assumptions are valid. However, you are happy for you to declare the same assumptions erroneous. That’s one rule for you and another for the rest of us.

    We’re too far apart in other areas here to have a useful discussion – particularly when you assume that others are politically biased and only you have objectivity. You continually confuse why people like me (or Cullen Roche or Unlearning Econ or many others) hold certain views. It has nothing to do with political bias – I don’t even consider myself particularly left-wing.

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