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3/26/2018 9:56 am  #21


Re: Positive economics and normative political economy

I'm not saying they're completely unsuccessful or haven't produced anything of worth, and even I'm sympathetic to some of the work from Minsky on the financial instability hypothesis or debt deflation theories, though I don't find them especially compelling. Rather, I'm just pointing out the quality of the research they've been putting out isn't very high, and that explains why they don't get published in good journals without needing to appeal to ad hoc conspiracy theorizing.

Internet PKs love bringing up the same objections that are allegedly devastating to mainstream neoclassical econ ad nauseam, telling you their macro models are all stock-flow consistent (as if mainstream models aren't), saying their price theory is empirically grounded rather than based on unrealistic neoclassical assumptions, and so on and so on. Yet when they stop writing up gratuitously lengthy blogposts and actually start writing down their models and their behavioral assumptions, it starts to look very strange at best and dubious at worst (this is a useful concise illustration of how bizarre neo-chartalism / MMT can look under even the simplest assumptions). At higher levels of macro, it usually seems they're just not aware of how contemporary macroeconomics is carried out, and oftentimes their own claims seem to indicate they're years behind on research methodology, as indicated by the emphasis the last few years on endogenous money, which is a debate the mainstream had 20-30 years ago. The kind of empirical evidence they marshal in support of their theories is usually of a similar quality, i.e. significantly behind the mainstream in technique and sophistication. In short, whatever the problems mainstream macro might have in dealing with issues like the Lucas critique or the Leamer critique, PKs are in an even worse spot.

My reason for posting the above economists (all of whom, you might have noticed, won Nobel prizes) was to show you can disagree with the orthodox neoclassical economics and still succeed at the absolute highest level of the profession, even in the eyes of orthodoxy. I'd suggest that undermines the notion that heterodox economists, in particular post-Keynesians, MMTers, or other left-heterodox economists, are locked out of top level journals because of some kind of methodological difference. The better explanation is just that the quality of research isn't up to par: there is some good PK economics, but most good economics is not PK economics.

Edit: As a completely irrelevant but amusing aside, even though I like Gintis somewhat, I can't help but make fun of him for his strange love for the new atheism, see here.

Last edited by UGADawg (3/26/2018 2:30 pm)

 

3/26/2018 1:58 pm  #22


Re: Positive economics and normative political economy

UGADawg wrote:

In short, whatever the problems mainstream macro might have in dealing with issues like the Lucas critique or the Leamer critique, PKs are in an even worse spot.

And this is the reason why I say that economics as a science is in a very sorry state. And this is an understatement. I would really like to say it barely qualifies as a science. Maybe this applies to both (all) sides of economics, but more obviously to the mainstream side, because they are the ones who call the shots and do the policies. For example, the equilibrium assumption is straightforwardly non-descriptive. The textbook illustrations of how rational choices or maximizing the profit supposedly work are indefensibly insane. When crises hit, free-market proponents suddenly begin bailing out banks on massive scale. Etc.

On the mainstream side, there is definitely no such thing as descriptive economics. Please let's accept this fact first and then go from there. As a cautious start, I recommend (politico-)economic histories. This is as close as it gets to descriptive economics.

 

3/26/2018 2:32 pm  #23


Re: Positive economics and normative political economy

Jeremy Taylor wrote:

Still, I don't agree with those critics of mainstream economics who reject mathematical economics entirely. The truth is that mainstream economists, despite their pride in being mathematically minded, are using long out of date static analysis and linear functions, whereas they should be using dynamic analysis and nonlinear differential equations. It has long been known, in all sorts of scientific disciplines, that such techniques are far better for better for modelling any type of complex system. The problem is that such analysis been shown a market is extremely unlikely to be in equilibrium. Indeed, there can be multiple equilibria, and a slight deviation from any can cause the market to move further from the equilibrium, sometimes greatly (one of the problems with the Austrians is that, although they reject equilibrium analysis, they imply the market will tend to stay close to equilibrium, but this is not necessarily the case).

Not all Austrians reject mathematical modeling. In their review of Keen's Debunking Economics, Gene Callahan and Robert Murphy expressed agreement with Keen's support for dynamic modeling.

My problem with the "mathematization" of economics is that it teaches students to ignore endogenous factors (technonlogy, demand, income, etc.), which heterodox theories of the business cycle (both Keynesian and Austrian) highlight.


K. Roland Heintz, B.A.
Economics, U.C. Santa Cruz 2017
Blog | Website
 

3/26/2018 2:34 pm  #24


Re: Positive economics and normative political economy

UGADawg wrote:

I mean, I'm just telling you he's something of a laughingstock in the profession and nobody takes him seriously, and that there's a reason for that, which largely explains his inability to be published in high level journals. His butchering of undergrad level economics is just a particularly egregious illustration. Other examples might be his neo-chartalism, his belief that mark-up pricing is evidence against competition's equilibriating tendencies, etc.

Hayek was ignored by the majority of the profession.
Mises  was ignored by the majority of the profession.
Wicksteed was welcomed by most of the profession.

All three were Austrian/causal-realist economists. What does Keen's being  ignored by the majority of the profession have to do with anything?

 


K. Roland Heintz, B.A.
Economics, U.C. Santa Cruz 2017
Blog | Website
 

3/26/2018 2:39 pm  #25


Re: Positive economics and normative political economy

Re: publication in mainstream journals

This article by William Barnett is very telling. Barnett highlighted basic problems in neoclassical methodology, and he was rejected because the editors of a mainstream journal just did not care.


K. Roland Heintz, B.A.
Economics, U.C. Santa Cruz 2017
Blog | Website
 

3/26/2018 6:12 pm  #26


Re: Positive economics and normative political economy

UGADawg wrote:

I'm not saying they're completely unsuccessful or haven't produced anything of worth, and even I'm sympathetic to some of the work from Minsky on the financial instability hypothesis or debt deflation theories, though I don't find them especially compelling. Rather, I'm just pointing out the quality of the research they've been putting out isn't very high, and that explains why they don't get published in good journals without needing to appeal to ad hoc conspiracy theorizing. Even bastardised Keynesianism was repudiated for not having proper microeconomic foundations, and it looked like macroeconomics was to be equated with or subordinated to general equilibrium theory. If things have changed. If you mean things have not gone down that road, that is a good outcome.

Internet PKs love bringing up the same objections that are allegedly devastating to mainstream neoclassical econ ad nauseam, telling you their macro models are all stock-flow consistent (as if mainstream models aren't), saying their price theory is empirically grounded rather than based on unrealistic neoclassical assumptions, and so on and so on. Yet when they stop writing up gratuitously lengthy blogposts and actually start writing down their models and their behavioral assumptions, it starts to look very strange at best and dubious at worst (this is a useful concise illustration of how bizarre neo-chartalism / MMT can look under even the simplest assumptions). At higher levels of macro, it usually seems they're just not aware of how contemporary macroeconomics is carried out, and oftentimes their own claims seem to indicate they're years behind on research methodology, as indicated by the emphasis the last few years on endogenous money, which is a debate the mainstream had 20-30 years ago. The kind of empirical evidence they marshal in support of their theories is usually of a similar quality, i.e. significantly behind the mainstream in technique and sophistication. In short, whatever the problems mainstream macro might have in dealing with issues like the Lucas critique or the Leamer critique, PKs are in an even worse spot.

My reason for posting the above economists (all of whom, you might have noticed, won Nobel prizes) was to show you can disagree with the orthodox neoclassical economics and still succeed at the absolute highest level of the profession, even in the eyes of orthodoxy. I'd suggest that undermines the notion that heterodox economists, in particular post-Keynesians, MMTers, or other left-heterodox economists, are locked out of top level journals because of some kind of methodological difference. The better explanation is just that the quality of research isn't up to par: there is some good PK economics, but most good economics is not PK economics.

Edit: As a completely irrelevant but amusing aside, even though I like Gintis somewhat, I can't help but make fun of him for his strange love for the new atheism, see here.

​Your comments on contemporary macroeconomics are interesting. I'm most familiar with the positions forty to twenty years ago, where mainstream macroeconomics seemed set on ignoring the more realistic and dynamic analysis of the Post-Keynesians et al., and making macroeconomics a colony of neoclassical microeconomics. 

​Anyway, most of those on your list seem a lot less beyond the mainstream than the average Post-Keynesian, Sraffian, Institutionalist, or perhaps even Austrian. As I said, the question is whether we are talking about replacement of fundamental neoclassical theories and assumptions, or offering models taken to be of special conditions, etc. New Institutionalist economics, for example, has a reputation, in some quarters at least, of bowdlerizing Old Institutionalist economics, and is seen more as an extension of neoclassical economics (rational choice theory, etc.) into the analysis of institutions than bringing genuine sociological and institutional analysis into economics. You may be right. Some critics of mainstream economics, like Paul Omerod, think the discipline is reinventing itself, with a far greater focus on realism (Vernon Smith's work itself is a good example), but the question is how far this goes, and how much filters down to the undergraduate level and policy level (what your average commerce degree or MBA student takes away from the couple of economics classes they do). I'm not sure that list proves that mainstream economics is yet open to widely nonconformist voices, but things may be changing.

 

3/28/2018 1:19 pm  #27


Re: Positive economics and normative political economy

Well, if you're just going to define heterodoxy in terms of something like the rejection of marginalism or methodological individualism, then yeah, there's not going to be anything like a major paradigm shift in the foreseeable future. Nor should there be.

There are good reasons approaches like historicism and old institutionalism died out. In fact, the differences between new and old institutionalism seem instructive here: the former has produced much more interesting and valuable research than the latter. Yet it seems to me this is best explained by the new school shifting the mode of analysis in a choice theoretic direction that examined and explained the welfare significance of institutions in terms of the incentive structures they generate, how they influence the quality and flow of information, and so on.

If the methodology excludes that kind of choice theoretical model, then the analysis is going to be indeterminate w.r.t. institutional robustness in the face of real world limitations like imperfect knowledge or self-interested behaviors, which is more than slightly ironic given how left-heterodox types are always droning on at unending length about the lack of realism in basic price theory.

Last edited by UGADawg (3/28/2018 1:20 pm)

     Thread Starter
 

3/28/2018 3:57 pm  #28


Re: Positive economics and normative political economy

I think we are going to have to agree to disagree. As far as I can see, that standard neoclassical microeconomics is unrealistic is an understatement. It relies on absurd assumptions, like there is essentially only one good and one person in the whole economy (or an infinite number of identical goods and people) or that prices are set once and for all by an omniscient auctioneer. And even then, there are logical issues, like the fact that marginal productivity theory relies on a circular definition of capital or that if one makes the common sense assumption that, for industries or commodities broadly defined, a change in supply can affect incomes (Sraffa's broad arrow), then supply and demand are no longer independent and you get a new demand curve for each point on the supply curve; and empirical issues, i.e., there are empirical findings against many points, such as transitivity of preferences always or that firms set their supply according to the neoclassical theory (where MC=MR).

And methodological individualism is deeply problematic (interestingly, much of sociology suffers from the reverse ill of methodological collectivism). It fundamentally ignores the fact man is a social being, or at least that one cannot get a full picture of man as a social being this way: if you start with individual behaviour alone, you always have to assume social rules and context within which he acts, hence you get a regress if you try to explain all such with the individual alone. Not to mention that basic neoclassical rational choice theory assumes independence of preferences, precisely because you can't aggregate the preferences of individuals if they aren't independent of each other. Yet, for all sorts of goods, we are influenced by our nature as social beings. These aren't special cases, either. Especially in corporate capitalism, they are much of the economy. It is, indeed, standard neoclassical microeconomics and rational choice that are, if anything, special conditions: both analysis and empirical evidence suggests assumptions like transivity, completeness, and this unstated axiom of independence simply don't apply for many people in many situations, indeed, most people in most situations. 

​I agree that there is a place for studying the individual as a someone who acts rationally according to their preferences, though I'd eschew rationality in the strong, neoclassical sense of utility maximiser - there is ample cause to think people do not act with that kind of precision, completeness, and independence. The use of rules of thumb is ubiquitous, for example. But it is essential, if one is to improve one's real economic analysis, to pair this with greater understanding of the relationship between the individual and his choice and social institutions, which can't be done simply by focusing on the individual alone. Sociology suffers from the reverse problem, as it tends to ignore the individual completely, which means it also can't tell us how the individual's preferences are shaped by society. I also think it is essential to bring in the insights of psychology. Interestingly, Veblen was strongly influenced by the psychology of William James, and tried to incorporate it into his economics. Economics takes individual preferences for granted, and ignores psychology, and sociology ignores the individual and so also ignores psychology. And, finally, I think philosophy has an important role in helping us understand the bigger picture, what man is and how we should approach his study. 

I think it is telling that consumer demand, for example, is studied very differently in economics and in marketing departments. Whatever shortcomings the latter research has, it is a lot more realistic and multidisciplinary (including drawing from some heterodox strains of economics, especially behavioural economics) than economics, and a lot more in demand by real businesses.

N.B. I don't see the point of referring to left heterodox types. That drags ideology into the discussion. Certainly, ideology is important on both sides. One of the reasons neoclassical microeconomics is so strongly defended, despite its manifest problems, is it seems to show that free markets (which a sleight of hand often equates to actually existing corporate capitalism) maximise social welfare. This is somewhat ironic, of course, given general equilibrium and perfect competition require a centralised planner/the auctioneer. Similarly, it is true that many critics of mainstream economics are especially roused by what they see as its ideological use in defending corporate capitalism, neoliberalism, etc. But the main criticisms are not touched by ideological squabbles or defined by ideological differences. Indeed, Sraffian value theory ended up not just dealing a devastating blow to marginal productivity theory, but showed that the Marxist transformation problem cannot be solved (you have to give the Marxians one thing - most Marxian economists subsequently abandoned the labour theory of value, whilst neoclassical economists have almost totally ignored the fatal blow to their theory of production and income). Besides I myself hardly fit into the usual ideological patterns. I am a distributist of a particularly decentralist stripe and a traditional conservative.

 

3/29/2018 4:35 pm  #29


Re: Positive economics and normative political economy

Very briefly, here are a few points to consider:

--- I just disagree that unrealistic assumptions entails one cannot draw anything useful from a model. The MR = MC condition you mention is illustrative in this regard. PKs will say the fact that firms do not set prices this way means the model is useless, but they just miss the point that market institutions themselves act as filters that select those firms that more closely approximate conditions for profit maximization, so the firm's specific approach is irrelevant. And importantly this is robust in the face of imperfect knowledge, transaction costs, etc. absent in standard perfectly competitive models. Unless individuals are assumed to be completely incapable of learning from mistakes or adapting to uncertainty, you can still draw reliable empirically significant conclusions.

--- You say individualism implies a regress problem, but this just seems to miss the point, as nothing about taking a methodologically individualist approach entails questions not analyzed in that framework aren't worthwhile. Rather, since the focus in economics is and should be one of understanding how exchange and production are coordinated through time, the economist has to focus on the issues I mentioned above re: institutional features affecting the structure of incentives and the quality and flow of information, which requires putting the focus on individuals. This is one reason policy proposals from schools of thought that do not emphasize that aspect tend to look hopelessly naive in hindsight.

--- "Left-heterodox economists" and "economists that reject choice theory broadly construed" might differ in sense but I'm not sure they differ in reference. After all, do you ever see free market PKs? Methodology has a significant influence on that, e.g. because ironically the command-and-control or man-of-system views criticized long ago by Adam Smith yet still common in left-heterodox circles are only plausible if one fails to take seriously how institutions determine the circumstances in which individual choices are made. 

​Neoclassical econ if anything seems much more neutral w.r.t. ideology, and your assertion that it's mostly used in defense of capitalism is just wrong. Some Chicago school types do argue that way, but if anything, the easiest way to get published in top level mainstream micro journals the past few decades has been to show there is some market inefficiency relative to perfect competition if the standard unrealistic assumptions are replaced with more realistic ones, and that the only way to fix this is by using some kind of government intervention. See also how the most famous model of socialism, Lange's, is grounded in standard neoclassical theory (and, arguably, cannot be refuted from within that framework).

Last edited by UGADawg (3/29/2018 4:43 pm)

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4/03/2018 11:25 pm  #30


Re: Positive economics and normative political economy

UGADawg wrote:

Very briefly, here are a few points to consider:

--- I just disagree that unrealistic assumptions entails one cannot draw anything useful from a model.

 
When economics is, scientifically and philosophically speaking, completely bankrupt like this (because the assumptions are not just unrealistic, they are absurd), then how is it still useful? Does the usefulness you mention involve any legitimate claim to normativity? To moral or at least pragmatic authority? It has to be a very limited usefulness, to say the least.

 

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