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3/11/2018 12:51 am  #1


Positive economics and normative political economy

Just curious what most people here think the relationship is between positive or descriptive economics and normative political economy. I'm not a consequentialist and I assume virtually no one on this forum is, so what kind of import do the lessons from economics have to play in saying how society should be organized? And what's the best kind of normative ethical theory to interpret this in light of?

 

3/11/2018 11:04 am  #2


Re: Positive economics and normative political economy

It's not by any means a full answer, but I think that when it comes to economics and politics, we may have a predilection for systems that are more efficient and bring better results for the highest number of people. It sounds consequentialist, but ir's only close to that: the thing is that when we are discussing the State or a society, we have to think of the common good; no longer are we simply thinking of individual ethics and rules of action, we are, instead, thinking about what best favors the community in general. So I think this gives considerable strength to policies which are more efficient and bring the best results for the highest number of people or the biggest sectors of society. These policies should, however, respect intrinsic natural rights, and as such there's really no consequentialism involved.

To me the best ethical theory for this is is still natural law; politics would be something like ethics applied to the community, when we are seeking to further society's natural ends: peace, prosperity, and to better allow every individual to also fulfill his own natural ends. The common good takes precedence over the individual good, but at the same time individual rights are to be protected and there shouldn't be unjust laws.

Just my 2 cents anyway, nothing too fancy.

 

3/13/2018 4:31 pm  #3


Re: Positive economics and normative political economy

Any sort of science should be used in governance with caution and moderation. It's a delusion to have "experts" rule you, unless you like unrestrained technocratic dystopia. They can advise, but not rule.

Of all scientists, lawyers and economists are closest to power - always, whether it be capitalist rule, communist rule, dictatorship or democracy. Lawyers have the deserved reputation of having no ethics, while they inform the contents of the laws that are supposed to guide our conduct. And economists shape our state of economy while their predictions of the effects of economic activity consistently fail.

Economics is in an extremely atrocious state as a science. It lacks method. It lacks focus of what it's supposed to be analysing. It has no idea of its scope and of its place among other sciences.

Those people have too much power already. No need to give them more of it. Then again, there's nobody else to give power to either.

 

3/14/2018 12:48 am  #4


Re: Positive economics and normative political economy

I suppose it depends if one is using the term descriptive economics in a general sense, or one means specifically what is current economic orthodoxy (i.e., more or less neoclassical economics). It doesn't seem to me that the latter should be treated without caution. Otherwise, I would say that descriptive economics, so far as it is purely descriptive and can be trusted as accurate, should be treated like any other technical or scientific knowledge is treated. Any normative or prescriptive platform has to take onboard relevant technical or scientific knowledge: if true, these  scientific fact are just how the world works. 

​That said, it is important to discern what are normative elements being sold as descriptive ones, just as it is important to make sure the latter are an entirely accurate picture of reality. 
 

 

3/21/2018 6:47 pm  #5


Re: Positive economics and normative political economy

Jeremy Taylor wrote:

I suppose it depends if one is using the term descriptive economics in a general sense, or one means specifically what is current economic orthodoxy (i.e., more or less neoclassical economics). It doesn't seem to me that the latter should be treated without caution. Otherwise, I would say that descriptive economics, so far as it is purely descriptive and can be trusted as accurate, should be treated like any other technical or scientific knowledge is treated. Any normative or prescriptive platform has to take onboard relevant technical or scientific knowledge: if true, these scientific fact are just how the world works. 

​That said, it is important to discern what are normative elements being sold as descriptive ones, just as it is important to make sure the latter are an entirely accurate picture of reality. 
 

This is a solid piece of advice. For example, consider the article published by the Freakonomics authors that claims abortion reduces crime. It seems completely descriptive until you learn that they made an arbitrary assumption in their argument:

Mueller wrote:

It is impossible using the data alone to distinguish the impact or 1970’s abortions on current crime rates from the impact of 1990’s abortions on current crime rates. Put another way, we obtain similar results regardless of whether we include 1970’s abortion rates or 1990s abortion rates, but when both are included multicollinearity leads to enormous standard errors. Consequently, it must be recognized that our interpretation of the results relies on the assumption that there will be a 15–20 year lag before abortion materially affects crime. (Donohue and Levitt, “Legalized Abortion and Crime,” unpublished paper, p. 22)

This is one of many cases in which a normative/philosophic assumption (e.g. time doesn't matter, murdering innocents is not immoral) is being sold as a description of economic reality.

John Mueller's critique of the "abortion decreases crime" theory can be found in his Family Policy Review articles, which can be accessed here: https://eppc.org/author/john_mueller/page/2/.


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

3/22/2018 6:32 pm  #6


Re: Positive economics and normative political economy

I haven't read Freakonomics, but if I recall, it is one of those attempts to apply neoclassical microeconomics to wide facets of life? An obvious issue is that neoclassical microeconomics is a neat and tidy shambles, with absurd assumptions (SMD-conditions, the Walrasian auctioneer, no reswitching, etc.), dubious methodology (static equilibrium analysis, for example), and internal contradictions and inconsistency. I think any conclusion about the real-world based simply on neoclassical microeconomics must be treated with utmost suspicion. 

 

3/23/2018 1:05 pm  #7


Re: Positive economics and normative political economy

@ JT

Books like Freakonomics aren't using anything nearly so formal as general equilibrium modeling, they're just an application of basic rational choice theory to unusual institutional contexts as a way of explaining certain aspects of bizarre human behavior (Leeson's new book WTF? is better than Levitt's in this regard).

People love to get in lots of point-missing debates about the legitimacy of rational choice theory, but really all it means is that people tend to choose the options they think will benefit them the most given the constraints they face, that they generally prefer more to less, etc. which should be fairly uncontroversial assumptions.

I'm not directly familiar with Levitt's work on crime and abortions, but if what is said above is correct, then it appears the fault wasn't with the economic theory at work as such, but rather one of Levitt's own ad hoc assumptions he made in attempting to back up a claim he was making.

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3/23/2018 4:05 pm  #8


Re: Positive economics and normative political economy

My understanding is that rational choice theory generally assumes an individual has perfect information and the unlimited ability to rank one's preferences, not to mention that it is possible to aggregate individual choices to derive a smooth, downward sloping demamd curve that intersects the supply curve once.

I am not sure what good such an approach would do to examining any social phenomena (unfortunately, mainstream macroeconomics now incorporates rational choice theory, as well as rational expectations).

 

3/24/2018 12:20 pm  #9


Re: Positive economics and normative political economy

No, rational choice theory doesn't assume people have perfect information. So much to the contrary, informational limitations are easily incorporated into the model as information costs, which just alters the choice constraint. Mutatis mutandis for preference rankings. 

It's important to keep in mind the meaning of "rational" in "rational choice theory" is very thin, being nothing more than an instrumental rationality (perhaps a helpful analogy would be to compare this with Aquinas's very thin notion of goodness when he says individuals always pursue what they take to be good in some way or another). This kind of choice theory is the basis of all economics, not just modern neoclassical economics that is (perhaps) overly concerned with mathematical tractability. In fact you can't do any economics at all without rational choice theory; it is, quite literally, impossible (laughable attempts from left-heterodox economists to model economic phenomena along fundamentally different lines notwithstanding).

Nor is this some curious invention modern economists are reading back into previous generations of economists. Go back to Adam Smith. What does his analysis and explanation of the economic coordination he was concerned with (the "invisible hand") look like? Well, he starts with the rational choice postulate and traces out the implications of that assumption in a market institutional context (see e.g. "...it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner..."). Much of TWoN is very similar, i.e. it's just applying rational choice theory to different institutional contexts to explain social cooperation and coordination, but it looks different because he was going off his intuitions rather than having some completely formalized model.

As for whether it's useful in contexts that aren't obviously amenable to technical economic analysis, perhaps read a short article like Leeson's application of choice theory to the behaviors and organizations of pirates from several centuries ago. Most people would say pirate behaviors were anything but rational (or, worse, would actually falsify rational choice theory), yet, when you read the actual application, it's obvious this just isn't true:

(PDF) http://www.peterleeson.com/An-arrgh-chy.pdf

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3/24/2018 5:00 pm  #10


Re: Positive economics and normative political economy

That is not correct. The basic rational choice theory does assume people have perfect information about the alternatives, that is, about the rankings between two choices they face (it is also true that the same basic foundation, including perfect knowledge, is used in much of the rest of neoclassical economics, from general equilibrium theory to the efficient markets hypothesis). This is implicit in the precision of preference ranking.

​These are Samuelson's four principles of consumer rationality:

1. Completeness: When given two combinations of goods A and B, a consumer can decide which one he prefers. So A > B, B > A, or A = B (he can get the same degree of satisfaction from both combinations, in which case he is indifferent).

2. Transitivity: If A is preferred to B, and B is preferred to C, then A is preferred to C.\

3. Non-satiation: More is always preferred to less

4: Convexity: The marginal utility a consumer receives from each commodity falls with additional units consumed.

Leaving aside the obviously questionable notion of being able to rank one's preferences ad infinitum*, ​my understanding is that there is empirical evidence against this model of consumer rationality, especially transivity, such as Sippel (1997). Also, if the desire is to aggregate individual preferences and demand to form a market demand curve, this has been shown, by neoclassical economists themselves, not to lead to a smooth, downward sloping demand curve that will intersect the supply curve (which we can assume - perhaps incorrectly, as Sraffa showed - will slope upwards) just once (without the patently unrealistic SMD conditions). 

​I agree that the general notion of rational choice in some sense captures important parts of human behaviour. People will make what seems to them rational trade offs in an attempt to secure the best outcomes for themselves.  The basic issue with rational choice theory (at least the one at the centre of neoclassical economics), though, is the degree of precision, knowledge, and stability it assumes in the consumer, not to mention its methodological individualism. I see no reason why this variety of rationality should be the basis of all economics. It doesn't seem in tune, for example, with the Post-Keynesian emphasis on uncertainty, especially in financial markets and macroeconomics, nor with the empirical evidence. Nor does trying to plot informational costs seem like it will improve matters too much. For a start, that seems to fall victim to the unfortunate neoclassical tendency to equate risk and uncertainty (which seems to follow from any attempt to give a functional relationship to such costs).

​* Steve Keen has a good illustration of how questionable this assumption is:

Consider, for example, your regular visit to a supermarket. The typical supermarket has between 10,000 and 50,000 items, but let’s segment them into just 100 different groups. How many different shopping trolleys could you fill if you limited your decision to simply whether to buy or not buy one item from each group? You would be able to fill two to the power of one hundred shopping trolleys with different combinations of these goods: that’s 1,267,650,600,228,229,401,496,703,205,376 trolleys in total, or in words over 1,000 million trillion trillion shopping trolleys. If you could work out the utility you gained from each trolley at a rate of 10 trillion trolleys per second, it would take you 100 billion years to locate the optimal one. Obviously you don’t do that when you go shopping.

 

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