Wednesday, December 13, 2017

On these 33 theses


The other day, Rethinking Economics and the New Weather Institute published "33 theses" and metaphorically nailed them to the doors of the London School of Economics [1]. They're re-published here. I think the "Protestant Reformation" metaphor they're going for is definitely appropriate: they're aiming to replace "neoclassical economics" — the Roman Catholic dogma in this metaphor — with a a pluralistic set of different dogmas — the various dogmas of the Protestant denominations (Lutheran, Anabaptist, Calvinist, Presbyterian, etc). For example, Thesis 2 says:
2. The distribution of wealth and income are fundamental to economic reality and should be so in economic theory.
This may well be true, but a scientific approach does not assert this and instead collects empirical evidence that we find to be in favor of hypotheses about observables that are affected by the distribution of wealth. A dogmatic approach just assumes this. It is just as dogmatic as neoclassical economics assuming the market distribution is efficient.

In fact, several of the theses are dogmatic assertions of things that either have tenuous empirical evidence in their favor or are simply untested hypotheses. These theses are not things you dogmatically assert, but rather should show with evidence:
11. ... Economics needs a deeper understanding of how markets behave, and could learn from the science of complex systems ...
21. ... Our understanding of GDP growth may be improved if we see innovation as occurring within a constantly-evolving, disequilibrium ecosystem ...
23. Private debt also profoundly influences the rate at which the economy grows[,] and yet is excluded from economic theory. The creation of debt adds credit-financed demand, and affects both goods and asset markets. ...
25. The way in which money is created affects the distribution of wealth within society. ...
27. Economics needs a better understanding of how instability and crises can be created internally within markets, rather than treating them as ‘shocks’ that affect markets from the outside.
There were two more theses that are also dogmatic assertions but can in fact be shown to be false in one relatively empirically accurate approach:
4. Policy does not ‘level’ the playing field, but tilts it in a direction.
12. Institutions shape markets, and influence the behaviour of all economic actors. ...
To first order in the information equilibrium approach, it seems empirically that economic policy does not affect a lot of things from GDP to unemployment over the bulk of the time series, and many institutions (e.g. the business news, central banks) serve as nuclei of coordination (groupthink) that cause problems (e.g. financial crises) for the sparse shocks in the time series. I'm not asserting this approach is correct, but rather that these theses exclude information equilibrium from the purportedly pluralistic set of approaches.

As with the other theses above, this is primarily because they represent hypotheses that need to be tested that are not true in many theories and may not be true in reality. I've written that focusing on human decision-making may be a longstanding bias (unchallenged assumption) in economic theory that has held it back. But I would not write up a manifesto where one thesis is that human decisions don't matter. Leave it to research to figure out [2].

A few theses seem like the authors regret choosing economics and wish they'd chosen a different field like ecology, psychology, or physics:
6. ... [The economy] depends upon a continual through-flow of energy and matter, and operates within a delicately balanced biosphere.
11. ... Economics needs a deeper understanding of how markets behave, and could learn from the science of complex systems, as used in physics, biology, and computing.
15. ... Mainstream economics therefore needs a broader understanding of human behaviour, and can learn from sociology, psychology, philosophy, and other schools of thought.
The first entry in the last section on teaching economics almost had me spitting out my coffee:
29. [Economics education should] also [include] a wide range of current perspectives – such as institutional, Austrian, Marxian, post-Keynesian, feminist, ecological, and complexity.
Austrian economics is basically garbage, and I'm not sure what they mean by complexity. Usually teaching (at least at the undergraduate level) is reserved for approaches that have withstood the test of time and are generally agreed as useful [3]. The speculative or alternative methodologies are more appropriate to graduate school (they require more critical thinking skills). You write a thesis on post-Keynesian economics, but you take a test on supply and demand.

This thesis was weird given that in the third rationale in the preamble said that economics wasn't being scientific:
31. Economics should not be taught as a value-neutral study of models and individuals. ...
It's true that sometimes science isn't "value neutral", but the key here is admitting and documenting your values and biases — not saying that you should go ahead and include your value system in a scientific approach to your subject.

*  *  *

Overall, these 33 theses represent a lot of unfounded assumptions and hypotheses presented as facts that feels to me to be almost more dogmatic than "mainstream" (or neoclassical) economics. A neoclassical synthesis education has produced a range of voices from Brad DeLong to John Cochrane (and even Steve Keen who has a Phd in economics). I agree that economics should be taught with eyes wide open to where the approach gets things wrong, but it seems that a traditional economics education is just as likely to generate a person that can question the mainstream (both DeLong and Cochrane do so extensively!) as any other field that teaches critical thinking —dare I say physics?

In the end, this effort is not terribly dissimilar to a reviewer asking why you didn't cite his or her paper in your manuscript, or an attendee at a conference asking a question about how the presenter's approach relates to the attendee's research. Why don't college economics classes teach my research? I ask that as a tongue-in-cheek rhetorical question about my own approach (of course they shouldn't teach information equilibrium in economics textbooks yet [4]), but I think Steve Keen actually intends to get his approaches [1] in their current form into introductory economics textbooks.

Again, the way to be scientific is not to make assertions about how inequality affects growth. In fact, I would question the results in a paper on that subject from anyone signing on to these theses. These economists have admitted a bias in favor finding a negative effect of increased inequality on an economy. When their paper comes out and says that inequality causes lower growth, my first reaction is going to be "of course you found that", not "I want to read this paper". It is no different from the way I look at papers from Tyler Cowen or John Cochrane that say lower taxes or less regulation improve growth. In a document that says economics has fallen short of the standard of science, explicitly claiming bias on major research topics seems like an odd choice.

...

PS Some of the writing is just funny:
5. The nature of the economy is that it is a subset of nature ...
...

Footnotes:

[1] Steve Keen was one of the people "nailing" the document to the doors. Part of the document says that economics is "developing more as a faith than as a science" which I find terribly ironic. If I had to choose an approach that was less scientific than mainstream economics, I'd probably choose Keen's (see here, here, here, here, or here). Kate Raworth was also in the pictures and I have issues with her dogmatic approach as well.

[2] This is basically a problem that I've found many times in economics: what should be a research question is instead asserted as a definition or dogmatic position. I documented several of these with regard to what recessions are. If these 33 theses are supposed to form the basis of an economic theory framework, then it shouldn't make major assumptions about the objects of study in that framework. Economic theory is supposed to study the effects of inequality and recessions, not assert their properties.

[3] What's funny about this is that the 33 theses starts out with a statement that "neoclassical economics made a contribution historically and is still useful", which would mean that the consensus framework among the various pluralistic approaches that should be taught in undergraduate curriculum is in fact neoclassical economics.

[4] But that doesn't stop me from dreaming ... [see here and here]

10 comments:

  1. Why oh why won't economists admit finite resources are not infinite

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    1. I believe the traditional description of economics is (aside from "the dismal science") the study of the allocation of scarce resources.

      Robbins (1932):

      "Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses."

      In fact, if resources were infinite the price would be zero because any finite demand for them would be small compared to infinite supply.

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    2. Jason: "if resources were infinite the price would be zero because any finite demand for them would be small compared to infinite supply"

      When digital products such as music and movies are added to Amazon, iTunes etc, supply is effectively infinite. Anyone who wants the product can have it with no further supplier action required. However, we observe non-zero prices.

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  2. I'm not a massive fan of these 'theses' but I don't agree with everything you say eithere. For example:

    "approaches that have withstood the test of time and are generally agreed as useful"

    ...assumes a whiggish interpretation the history of economic thought - given your repeated criticisms of the level of empiricism in mainstream economics I'd be surprised if you believe that a lot of existing undergraduate theory is there based on merit rather than inertia. A lot of heterodox theories, particularly post-Keynesian ones, also have plenty of empirical support.

    As for values, the crucial difference between social and natural science is that what you study in social science almost always carries values with it. So economists focus a lot on efficiency, growth etc. when other goals such as stability or equality could easily be the focal points of models. I'm not saying either is right or wrong, I'm saying that appreciating that fact is what the theses are calling for.


    Also @luis - the finite resources thing is a better point than some commentators have made out. Mainstream econ studies scarcity but the idea of fundamental environmental limits to GDP growth is rarely, if ever, explored.



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    1. Hello UnlearningEcon!

      First, let me say that the "generally regarded as useful" was in reference to the 33 theses document which said:

      ... while neoclassical economics made a contribution historically and is still useful ...

      I probably should have expanded on that point, but I was alluding to a commonality recognized by the authors of the 33 theses. I'd completely agree with adding in units on where 'neoclassical economics' doesn't get things right or is applied towards political ends.

      And yes, I completely agree that it is hard to separate value systems from economic theory. I actually completely agree with the value system presented in the 33 theses! But the answer to what in the US is called "fresh water economics" (being centered on schools near the Great Lakes) in economic theory is not to just replace one value system with a different value system.

      Let me re-write thesis 31 in a way that I agree with:

      31*. It is impossible to separate economics (especially macroeconomics) from value systems and therefore care must be taken to acknowledge bias towards specific value systems in economic theory. In order to do this, economists need to be well versed in ethics and politics, as well as being able to meaningfully engage with the public.

      By "care" here, I mean Feynman's "leaning over backwards" to acknowledge sources of bias.

      For example, John Cochrane frequently writes total political garbage dressed up as economics without acknowledging the fact that he is a right wing conservative and it's probably not just a coincidence that he came up with some equations that support a right wing agenda. He's not "leaning over backwards". Paul Krugman has an excellent example of playing by my thesis 31* here:

      https://krugman.blogs.nytimes.com/2015/06/08/musings-on-inequality-and-growth/

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  3. Yes, many of these theses are awful and some are funny. The only defence is that mainstream economics is based on many other unproven assumptions, so the heterodox economists are merely reflecting the lack of scientific rigour in the mainstream by advocating a different set of unproven assumptions. Unfortunately, I think the problems are far deeper than any of these people seem to realise. Here are two general points which I’ll try to make with examples from real science.

    First, what is the relationship between economics and science? Using a physics analogy, here are several questions relating to atomic energy which I have classified by type:

    SCIENCE: what are the components of an atom and can we split them apart?
    ENGINEERING: can we use our scientific knowledge to build an atomic bomb?
    POLICY/DECISION-MAKING: SHOULD we use our scientific knowledge to build an atomic bomb?
    POLICY/DECISION-MAKING GOVERNANCE: who should society appoint to decide whether we should build an atomic bomb?
    HISTORY: to what extent did the use of the atomic bomb in WWII impact the rest of the 20th Century?
    ETHICS/MORALITY: is it ethical for the US to prevent other countries from developing atomic bombs while insisting on maintaining its own atomic bombs?

    Note that only one of these questions represents science. However, economics involves trying to answer equivalent questions in ALL these categories while claiming that economics is science. That’s a con and is the cause of much of the confusion in the subject e.g. people with different political biases invent different “sciences”.

    Second, in as much as economics is science, or could be science, what type of science would it be? I can think of at least four plausible analogies with real science:

    PHYSICS: economics is about developing generic mathematical models to forecast the future
    MEDICINE: economics is about diagnosing, curing and, ideally, preventing economic diseases
    GEOLOGY: economics is about observing the economy, classifying its variety and teasing out basic cause & effect relationships
    SCIENCE: economics is a jack-of-all-trades / master-of-none version of science. Imagine a course in “science” rather than separate courses in physics, chemistry, biology etc.

    There are two points arising here.

    First, you think economics is like physics whereas I think it is more like medicine. Who is correct and how would we decide? I don’t believe that there is a correct answer to this question but there are major implications for economic method. Both of our answers are themselves assumptions. However, you present your assumption as a fact – which is the same crime of which you are accusing the economists!

    Second, a course in “science” would give its students a broad but relatively shallow view of science. Every time a generalist “scientist” drew a conclusion, specialist scientists would point out that the generalist view was shallow and that the specialists knew better. This is what happens in economics with respect to policy making, business, finance, human decision-making, mathematical modelling, accounting etc. The question is what would be the point of such a generic “science”, when better-informed specialisms already exist?

    The problem for economists is that the internet has exposed the amateurishness and insularity of economists. Academic economists see that non-economists don’t understand economics and imagine that they are superior beings amongst a sea of anti-intellectualism. The rest of the society sees that non-economists don’t understand economics and asks what is the point of academic economists who can’t educate the rest of society.

    One of the aspects of Feynman integrity which you rarely mention is that Feynman believed that he didn’t really understand something unless he could explain it to non-specialists, including answering their questions to their satisfaction. On that basis, I don’t think economists really understand anything.

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    1. Nice comment. One of the best distillations of our predicament I’ve seen anywhere. If mathematics is the common language bridging across many fields, my take on economics as a discipline is it's way behind in appreciating the importance of nonlinearity in producing multiple solutions which gives rise to questions about stability and evolution of systems under consideration. The headliner’s quip that he doesn’t really grock chaos theory is telling. What if the best undergraduate introduction to science and economics writ large is in fact stability, nonlinearity, chaos, modeling and perturbation method with examples drawn from all disciplines?

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    2. Hi Jamie,

      I agree with everything you wrote here. Especially this line:

      "... heterodox economists are merely reflecting the lack of scientific rigour in the mainstream by advocating a different set of unproven assumptions"

      My discontent was predicated on a sense that heterodox econ should strive to be *better* than traditional econ, but usually I see the same problems that I see in the mainstream just in different forms.

      Peter,

      When you said:

      The headliner’s quip that he doesn’t really grock chaos theory is telling.

      That misunderstands what I was saying. I am well versed in dynamical systems. Per the post at the link to the phrase in question, it is the *economists* who don't understand what they mean by complexity.

      For example, Steve Keen frequently says "complex system" when he really means "dynamical system" (i.e. chaos, attractors). "Complex dynamical system" means a dynamical system with complex numbers (not used in economics). Frequently I see economists use "complex" where they really just mean "complicated".

      You can read more about these definitions at my post here:

      https://informationtransfereconomics.blogspot.com/2017/08/economics-criticism-as-art-criticism.html

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  4. What is the problem with dogma? Remember biologists and their central dogma, DNA -> RNA -> proteins. No one thought it was completely true, but it was an amazingly productive working hypothesis and still is. Mathematicians did the same thing when Hilbert threw down his challenge early last century. They had to use mathematical logic to find the holes in mathematical logic, and that meant making a huge assumption. Even physicists do this. Every physicist knows that our theories of general relativity and quantum mechanics are incomplete, but the vast majority of physicists treat them as working assumptions. Sometimes, as Archimedes put it, you need a place to stand.

    I don't agree with each of those 33 theses, but I think economics could benefit from a challenge to its belief system. As with every other field, it has its dogma. Maybe it could become a lot more useful with a change of dogma.

    P.S. Your objection to items 6, 11 and 15 strikes me as odd. Suggesting that a field incorporate methods and advances from other fields is not an argument that one is in the wrong field. It's an argument that there are ideas in other fields that could improve another. It's an odd objection from a physicist dabbling in economics.

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    1. Kaleberg,

      Hilbert's problems did not assert "the Riemann hypothesis is true" (i.e. assume the outcome). That would be the analogy here. My issue with the 33 theses is that they assume the outcome of research that either hasn't been done or isn't definitive. If they had said "inequality should be studied more" or "inequality is neglected in economics", I would have been fine with it. But instead they assert inequality is fundamental. What if it turns out that inequality doesn't have any measurable effect on economic growth? (I don't know the answer to this question and my hunch is that inequality does slow growth, but it serves as an argument against the way it was stated in the theses.)

      Physicists treat general relativity as an effective theory.

      As far as we know, quantum mechanics is completely true and not thought to be incomplete (unless you mean nonrelativistic quantum mechanics or quantum field theory which are both also seen as effective theories).

      (The reason I put in the part about other fields is partially because I found it funny. And I realize that I apparently deleted a line about giving in to physics-envy. But also there are ulterior motives in the lists of other fields -- these are the fields that the research and writing of the authors of the 33 theses themselves borrow from. It would be like me writing up a manifesto and saying that:

      "Economics should listen to other fields, like information theory."

      It would be self-serving. They might as well said that economics should listen to Steve Keen and Kate Raworth more. My comment had to do with the fact that I think Keen and Raworth might have been happier if they had taken up electical engineering and biology, respectively.)

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